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  • USD/CAD met with some fresh supply on Wednesday and erased the overnight modest gains.
  • Dovish Fed expectations, recent fall in the US bond yields, risk-on mood weighed on the USD.
  • A subdued action in the oil market did little to influence the loonie or provide any impetus.

The USD/CAD pair traded with a negative bias heading into the European session and was last seen hovering near the lower end of its intraday trading range, around mid-1.2000s.

The pair continued with its struggle to register any meaningful recovery and has been oscillating in a narrow band since the beginning of this week, consolidating the recent slump to six-year lows. The US dollar languished near the lowest level since January amid expectations that the Fed will retain its ultra-lose policy stance for a longer period. Apart from this, the recent strong move up in oil prices underpinned the commodity-linked loonie and acted as a headwind for the USD/CAD pair.

Worries about runaway inflation in the US receded after various FOMC officials reiterated that any spike in prices is more likely to be temporary. Investors now seemed aligned with the Fed’s dovish view, which was evident from the ongoing downfall in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond fell to fresh multi-week lows, around 1.56% on Tuesday. This, along with the upbeat market mood, continued weighing on the safe-haven greenback.

Apart from this, the underlying bullish sentiment in the financial markets was seen as another factor that dented the USD’s relative safe-haven status. Conversely, the Canadian dollar remained well supported by a more hawkish Bank of Canada and seemed unaffected by a subdued action in the oil market. Expectations of improving US fuel demand, to some extent, were overshadowed by worries that a possible return of Iranian supply would cause a glut and capped gains for the black gold.

Meanwhile, the range-bound price moves around the USD/CAD pair constitutes the formation of a rectangle on short-term charts. This might be categorized as a consolidation phase, suggesting that the recent bearish trend might still be far from being over. Hence, any attempted recovery move could still be seen as a selling opportunity and runs the risk of fizzling out rather quickly amid absent relevant market-moving economic releases, either from the US or Canada.

Technical levels to watch