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  • A goodish pickup in the USD demand assisted USD/CAD to rebound from two-week lows.
  • The upbeat US economic outlook, a softer risk tone benefitted the safe-haven greenback.
  • An uptick in crude oil prices underpinned the loonie and might cap the upside for the pair.

The USD/CAD pair edged higher through the early European session and refreshed daily tops, around the 1.2555 region in the last hour.

Having defended the key 1.2500 psychological mark on Monday, the pair staged a goodish rebound from two-week lows and was supported by a sudden pickup in the US dollar demand. Despite the ongoing decline in the US Treasury bond yields, the USD caught fresh bids during the first half of the trading action on Tuesday and extended some support to the USD/CAD pair.

Investors remain optimistic about the US economic outlook amid the impressive pace of coronavirus vaccinations and US President Joe Biden’s spending plan. Monday’s upbeat US ISM Services PMI added to the narrative of a relatively faster US economic recovery from the pandemic. This, along with a weaker risk tone drove some haven flows back towards the greenback.

Meanwhile, the relation trade has been fueling speculations about an uptick in US inflation and raised doubts that the Fed would retain ultra-low interest rates for a longer period. This should help limit any meaningful slide in the US bond yields, supporting prospects for additional gains for the greenback and an extension of the intraday move up for the USD/CAD pair.

However, a positive tone around crude oil prices benefitted the commodity-linked loonie and might turn out to be the only factor capping gains for the USD/CAD pair. That said, concerns that the third wave of COVID-19 infections and pandemic-related restrictions in Europe could hinder the anticipated recovery in fuel products should cap gains for the black gold.

In the absence of any major market-moving economic releases, either from the US or Canada, the USD price dynamics will continue to play a key role in influencing the intraday movement. Nevertheless, the combination of factors suggests that the path of least resistance for the USD/CAD pair is on the upside and intraday dips will now be seen as buying opportunity.

Technical levels to watch