USD/CAD remains depressed below 1.2100 mark

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  • USD/CAD traded with a mild negative bias for the second straight session on Friday.
  • Dovish Fed expectations, sliding US bond yields continued weighing on the greenback.
  • A softer tone around oil prices undermined the loonie and helped limit deeper losses.

The USD/CAD pair remained on the defensive below the 1.2100 mark through the early European session, albeit lacked any strong follow-through selling.

The pair added to the previous day’s modest losses and edged lower for the second consecutive session on Friday. The downtick was sponsored by the prevalent selling bias surrounding the US dollar, which was weighed down by expectations that the Fed will retain its ultra-lose policy stance for a longer period.

Data released on Thursday showed that the pace of inflation in the United States climbed to a 13-year high in May. Investors, however, seem aligned with the Fed’s narrative that any spike in inflation is likely to be transitory as the economy continues to recover and that pricing pressures will abate later in the year.

This was reinforced by the overnight sharp decline in the US Treasury bond yields, which extended through the first half of the trading action on Friday. In fact, the yield on the benchmark 10-year US government bond languished near its lowest level since early March, which acted as a headwind for the greenback.

That said, the downside remains cushioned, at least for the time being, amid a softer tone around crude oil prices, which tend to undermine demand for the commodity-linked loonie. The USD/CAD pair, so far, has been oscillating in a range since the beginning of this week, warranting some caution before placing fresh directional bets.

Market participants now look forward to the release of the Preliminary Michigan US Consumer Sentiment index for some impetus later during the early North American session. Apart from this, the US bond yields will influence the USD. Traders might further take cues from oil price dynamics to grab some short-term opportunities.

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