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  • USD/CAD gained strong positive traction on Monday and was supported by a combination of factors.
  • The ongoing rally in the US bond yields, a pullback in equity markets underpinned the safe-haven USD.
  • A modest pullback in oil prices weighed on the loonie and remained supportive of the positive move.

The USD/CAD pair caught some aggressive bids during the early North American session and shot to fresh two-week tops, around the 1.2835 region in the last hour.

A combination of supporting factors assisted the pair to gain strong positive traction on the first day of a new trading week and move away from multi-year lows, around the 1.2630 region set last week. The US dollar remained well supported by the recent strong rally in the US Treasury bond yields, triggered by the increasing likelihood of additional US fiscal stimulus measures.

Investors started pricing in the prospects for a more aggressive US fiscal spending in 2021 following the Democratic sweep in the US Senate runoff elections in the state of Georgia. Expectations of a larger government borrowing pushed the yield on the benchmark 10-year government bond to the highest level since March and continued benefitting the greenback.

Apart from this, concerns about the continuous surge in new coronavirus cases and the imposition of strict lockdown restrictions in Europe/China tempered the recent optimism. This, in turn, dented investors’ appetite for perceived riskier assets and led to a sharp pullback in the equity markets, which provided an additional boost to the safe-haven USD.

On the other hand, concerns about global fuel demand were evident from a weaker tone surrounding crude oil prices. In fact, WTI crude was down around 1% for the day, which was seen as another factor that undermined the commodity-linked currency – the loonie – and remained supportive of the USD/CAD pair’s strong intraday positive move.

Meanwhile, the latest leg of a sudden spike over the past hour or som could also be attributed to some technical buying on a sustained move above the 1.2800 mark. Some follow-through buying beyond the 200-period SMA on the 4-hourly chart will set the stage for an extension of the ongoing appreciating move amid absent relevant market moving economic releases.

Technical levels to watch