- USD/CAD reversed an intraday dip and has now moved back above the 1.2500 mark.
- COVID-19 jitters, a modest bounce in the US bond yields underpinned the greenback.
- Sliding crude oil prices weighed on the loonie and remained supportive of the uptick.
The USD/CAD pair recovered around 35 pips from daily lows and climbed back above the key 1.2500 psychological mark during the first half of the European session.
A combination of factors assisted the pair to quickly reverse an intraday dip to the 1.2475-70 region and move further away from the post-BoC slump to the lowest level since March 18. Renewed fears about another dangerous wave of coronavirus infections in some countries continued weighing on investors’ sentiment. This, along with an intraday bounce in the US Treasury bond yields, provided a modest lift to the safe-haven US dollar.
Meanwhile, crude oil prices remained depressed near one-week lows amid worries that soaring COVID-19 cases in India – the world’s third-biggest oil importer – and Japan will drive down fuel demand. This, in turn, undermined demand for the commodity-linked loonie and further contributed to the USD/CAD pair’s intraday uptick. That said, diminishing odds for an earlier Fed lift-off might hold the USD bulls from placing aggressive bets.
On the other hand, a more hawkish forward guidance by the BoC might extend some support to the Canadian dollar and further collaborate towards capping gains for the USD/CAD pair. The BoC on Wednesday brought forward its guidance for the first interest rate hike to the second half of 2022. This further makes it prudent to wait for some strong follow-through buying before confirming that the pair has bottomed out in the near term.
Market participants now look forward to the US economic docket, featuring the release of the usual Initial Weekly Jobless Claims. This, along with the US bond yields and the broader market risk sentiment, will influence the USD. Apart from this, oil price dynamics might further contribute to produce some short-term trading opportunities around the USD/CAD pair.
Technical levels to watch