USD/CAD struggles near multi-year lows, around 1.2700 mark

• A combination of factors prompted some fresh selling around USD/CAD on Thursday.
• Optimism about US stimulus, COVID-19 vaccines and Brexit deal weighed on the USD.
• Bullish oil prices underpinned the loonie and further contributed to the intraday slide.

The USD/CAD pair refreshed daily lows during the early European session, with bears still awaiting a sustained weakness below the 1.2700 mark.

The pair witnessed some fresh selling on Thursday and erased a major part of the previous day’s attempted bounce, which ran out of the steam ahead of the 1.2800 neighbourhood. The USD/CAD pair has now moved well within the striking distance of multi-year lows set earlier this week and was pressured by a combination of factors.

The bearish pressure surrounding the US dollar remained unabated through the first half of the trading action on Thursday amid progress towards additional US fiscal stimulus. In fact, Republicans and Democrats in the US Congress on Wednesday were reportedly closing in on approving a $908 billion COVID-19 relief package.

This comes on the back of the recent optimism about the rollout of vaccines for the highly contagious coronavirus diseases and hopes for a last-minute Brexit deal. The developments continued boosting investors’ confidence and remained supportive of the prevalent risk-on mood, which, in turn, further undermined the safe-haven greenback.

Apart from this, the Fed’s willingness to do more if needed exerted some additional downward pressure on the buck. At the final meeting of the year, the US central bank said that it will continue to support the economy through massive monetary stimulus and also promised to keep interest rates near zero for years to come.

On the other hand, a fresh leg up in crude oil prices benefitted the commodity-linked currency – the loonie – and further contributed to the USD/CAD pair’s decline. Oil hit a nine-month high after the EIA report on Wednesday showed that US crude inventories fell more than expected, by 3.1 million barrels in the week of December 11.

It will now be interesting to see if the USD/CAD pair is able to find any support at lower levels or a sustained break below the 1.2700 mark sets the stage for an extension of the bearish trajectory. Traders now look forward to Thursday’s US economic docket – featuring the releases of the Philly Fed Manufacturing Index, Initial Weekly Jobless Claims and housing market data.

Technical levels to watch