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  • A combination of factors exerted some follow-through pressure around USD/CAD on Tuesday,
  • The risk-on mood weighed on the safe-haven USD; bullish oil prices underpinned the loonie.
  • Rallying US bond yields could revive the USD demand and help limit heavy losses for the pair.

The USD/CAD pair maintained its offered tone through the early European session and was last seen trading near daily swing lows, around the 1.2830-25 region.

The pair extended the previous day’s rejection slide from the 1.2800 round-figure mark, or one-week tops and witnessed some follow-through selling on Tuesday. The downtick was sponsored by a modest US dollar pullback from near one-month highs and bullish crude oil prices, which tend to underpin the commodity-linked loonie.

The global risk sentiment remained well supported by the optimism over the rollout of COVID-19 vaccines and hopes for more aggressive fiscal spending in 2021 under Joe Biden’s presidency. This, in turn, was seen as a key factor that weighed on the safe-haven US dollar demand and exerted some pressure on the USD/CAD pair.

Meanwhile, the likelihood of additional US fiscal stimulus, to a larger extent, helped offset concerns that renewed coronavirus-induced lockdowns could hurt fuel consumption. Oil prices further benefitted from Saudi Arabia’s announcement to cut supply in the next two months, though the ever-increasing coronavirus cases might cap gains.

Apart from this, expectations of a larger government borrowing pushed the US Treasury bond yields higher across the board and might extend some support to the greenback. Investors might also refrain from placing aggressive bets ahead of the Bank of Canada policy decision on Wednesday, which could further help limit any meaningful downside for the USD/CAD pair.

In the absence of any major market-moving economic releases, either from the US or Canada, traders are likely to take cues from the US Treasury Secretary nominee Janet Yellen’s confirmation hearing. This, along with the broader market risk sentiment, will influence the USD price dynamics and produce some trading opportunities around the USD/CAD pair.

Technical levels to watch