USD/CAD struggles for direction, confined in a range below 1.2700 mark

• USD/CAD extended its directionless price move for the second straight session on Thursday.
• Bullish oil prices underpinned the loonie and kept a lid on any meaningful upside for the pair.
• The USD found some support amid rallying US bond yields, which helped limit the downside.

The USD/CAD pair struggled for a firm direction and remained confined in a narrow trading band, below the 1.2700 mark through the early European session.

A combination of diverging forces failed to provide any meaningful impetus to the major, instead led to subdued/range-bound price action for the second consecutive session on Thursday. The prevalent bullish sentiment surrounding crude oil prices underpinned the commodity-linked loonie and capped the upside for the USD/CAD pair.

Oil prices rose to the highest level since February last year on Thursday and remained well supported by Saudi Arabia’s unilateral decision to cut output over the next two months. The commodity got an additional boost after the Energy Information Administration on Wednesday reported a larger-than-anticipated fall in US stockpiles.

Meanwhile, the market has been pricing in the possibility of a more expansive fiscal policy in the wake of a Democratic victory in the crucial US Senate runoff elections in the state of Georgia. Expectations of larger government borrowing pushed the benchmark 10-year US Treasury yield further beyond 1.0% mark, to the highest level since March 2020.

Rallying US bond yields extended some support to the US dollar, which, in turn, was seen as one of the key factors lending some support to the USD/CAD pair. That said, the pair’s inability to register any meaningful recovery suggests that the recent downtrend might still be far from being over and warrants some caution for bullish traders.

Hence, it will be prudent to wait for some strong follow-through buying before confirming that the USD/CAD pair has bottomed out in the near-term and positioning for any meaningful recovery. Market participants now look forward to the US economic releases – Initial Weekly Jobless Claims and ISM Services PMI – for a fresh trading impetus.

Technical levels to watch