USD/CAD slides to fresh session lows, closer to mid-1.3000s

• A combination of factors prompted some fresh selling around USD/CAD on Monday.
• COVID-19 vaccine optimism led to a modest uptick in oil and underpinned the loonie.
• Dovish Fed expectations weighed on the USD and exerted some additional pressure.

The USD/CAD pair traded with a mild negative bias through the early European session and was last seen hovering near the lower end of its daily range, closer to mid-1.3000s.

The pair failed to capitalize on Friday’s goodish intray bounce of around 60 pips, instead faced rejection near the 1.3100 mark and was being pressured by a combination of factors. The latest optimism over successful coronavirus vaccine trials revived hopes for a recovery in fuel demand. Apart from this, expectations that OPEC+ will keep output in check led to a modest uptick in crude oil prices. This, in turn, benefitted the commodity-linked currency – the loonie – and was seen as one of the key factors exerting some pressure on the USD/CAD pair.

Meanwhile, the upbeat market mood undermined the safe-haven US dollar, which was already weighed down by speculations for additional monetary easing by the Fed. Investors seemed to have started pricing in the possibility of such action as soon as the December meeting amid concerns about the economic fallout from the imposition of new COVID-19 restrictions in several US states. Hence, the key focus will be on the release of the latest FOMC meeting minutes, due on Wednesday, which will play a key role in driving the near-term sentiment surrounding the USD.

In the meantime, traders might take cues from Monday’s release of the flash version of the US Manufacturing and Services PMIs. Apart from this, the broader market risk sentiment will influence the USD price and produce some meaningful trading opportunities around the USD/CAD pair.

From a technical perspective, some follow-through weakness below the 1.3040-35 horizontal support will be seen as a fresh trigger for bearish traders and accelerate the slide back towards the key 1.3000 psychological mark. The USD/CAD pair might then eventually drop to test monthly swing lows support near the 1.2930-25 area.

Technical levels to watch