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  • A combination of factors failed to assist USD/CAD to register any meaningful recovery.
  • Sliding US bond yields, the prevalent risk-on mood kept the USD bulls on the defensive.
  • A modest uptick in oil prices underpinned the loonie and collaborated to cap the upside.

The USD/CAD pair extended its sideways consolidative price action through the early North American session and remained confined in a range just above mid-1.2000s.

The pair, so far, has failed to register any meaningful recovery and remained well within the striking distance of the lowest level since May 2015 touched last week. The prevalent bearish sentiment around the US dollar, along with an uptick in crude oil prices capped the upside for the USD/CAD pair. That said, relatively thin liquidity conditions held traders from placing fresh bearish bets and helped limit the downside, at least for the time being.

The USD struggled to capitalize on Friday’s attempted recovery move from multi-month lows, instead met with some fresh supply amid the ongoing decline in the US Treasury bond yields. Apart from this, the underlying bullish sentiment in the global financial markets further acted as a headwind for the safe-haven greenback. The latest comments by Fed Governor Lael Brainard did little to provide any respite to the USD bulls or move the USD/CAD pair.

Answering questions at a cyber conference, Brainard said that the US in the middle of an unprecedented rebound in the economy. Prices are rebounding from pandemic lows and the increases are linked to a surge in demand. She further added that the Fed has the tools to guide inflation back to the downside if price pressures move persistently above our goals.

On the other hand, the Canadian dollar remained well supported by a more hawkish Bank of Canada. It is worth recalling that the BoC reduced its weekly asset purchases at the April policy meeting and also brought forward the guidance for the first interest rate hike to the second half of 2022. This, along with an uptick in oil prices, provided an additional boost to the commodity-linked loonie and failed to assist the USD/CAD pair to gain any traction.

From a technical perspective, the range-bound price action might be categorized as a consolidative phase following the recent slump. The lack of buying interest suggests that the near-term bearish trend might still be far from being over and that the path of least resistance for the USD/CAD pair remains down. Hence, any recovery beyond the 1.2100 mark might be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

Technical levels to watch