- USD/CAD added to the overnight strong gains and scaled higher for the second straight day.
- The greenback remained well supported by some follow-through uptick in the US bond yields.
- Bullish crude oil prices might underpin the loonie and cap any meaningful upside for the pair.
The USD/CAD pair edged higher during the early European session and was last seen trading near three-day tops, around the 1.2715 region.
The pair gained traction for the second consecutive session on Wednesday and built on the previous day’s solid rebound from the 1.2600 neighbourhood, or near four-month lows. The uptick was supported by some follow-through buying around the US dollar, which remained well supported by the recent runaway rally in the US Treasury bond yields.
The market has been pricing in the prospects for the passage of the US President Joe Biden’s proposed $1.9 trillion stimulus package. The reflation trade pushed the yield on the benchmark 10-year US government bond to the highest level since February 2020, around 1.30%, which underpinned the USD demand and extended some support to the USD/CAD pair.
The supporting factor, to some extent, was offset by an uptick in crude oil prices, which tends to benefit the commodity-lined loonie. In fact, the black gold held steady above the $60.00 mark, well within the striking distance of over one-year tops amid the optimism over the global economic outlook and expectations for a strong recovery in fuel demand.
The progress in vaccination for the highly contagious coronavirus disease and the slowing pace of infections continued fueling hopes for a quick global economic recovery from the pandemic. This, along with expectations for a massive US fiscal spending plan, further boosted investors’ confidence. This, in turn, might cap any further gains for the USD/CAD pair.
Market participants now look forward to the US economic docket, highlighting the release of monthly Retail Sales data. Apart from this, the US bond yields will influence the USD price dynamics and produce some meaningful trading opportunities around the USD/CAD pair.