USD/CAD slides below 1.2700 mark amid softer USD, bullish oil prices

• USD/CAD remained under some selling pressure for the second consecutive session on Wednesday.
• The underlying bullish sentiment weighed on the safe-haven USD and exerted downward pressure.
• An uptick in oil prices underpinned the loonie and further contributed to the intraday selling bias.
• The downside is likely to remain limited ahead of the BoC decision and Biden’s inaugural ceremony.

The USD/CAD pair dropped to three-day lows in the last hour, with bears now looking to extend the downward trajectory further below the 1.2700 level.

The pair extended this week’s rejection slide from the 1.2800 round-figure mark and witnessed some follow-through selling for the second consecutive session on Wednesday. The downfall was sponsored by a weaker tone surrounding the US dollar and bullish crude oil prices, which tend to underpin the commodity-linked loonie.

The underlying bullish sentiment in the financial markets was seen as one of the key factors driving flows away from the safe-haven greenback. The global risk sentiment remained well supported by the optimism over the rollout of vaccines for the highly contagious coronavirus disease and hopes for additional US fiscal stimulus.

The market bets for a more aggressive US fiscal spending in 2021 increased further after the US Treasury Secretary nominee Janet Yellen urged lawmakers to act big on the COVID-19 relief package. This, to a larger extent, helped offset concerns about a slow recovery in fuel demand and provided a goodish lift to crude oil prices.

That said, a modest uptick in the US Treasury bond yields – amid expectations of a larger government borrowing – might extend some support to the USD and help limit losses for the USD/CAD pair. Investors might also refrain from placing aggressive bets ahead of the President-elect Joe Biden’s inaugural ceremony and BoC policy decision on Wednesday.

This makes it prudent to wait for some strong follow-through selling before confirming that the recent recovery move from multi-year lows has already run out of the steam. This, in turn, might turn the USD/CAD pair vulnerable to resume its prior, well-established bearish trend amid absent relevant market moving economic releases from the US.

Technical levels to watch