- USD/CAD attracted some buying on Wednesday and turned positive for the second straight session.
- An uptick in the US bond yields helped ease the USD bearish pressure and extended some support.
- Dovish Fed expectations might hold the USD bulls from placing aggressive bets and cap the upside.
The USD/CAD pair rallied around 40 pips during the early European session and climbed to fresh daily tops, around the 1.2080 region in the last hour.
The pair reversed an intraday dip to levels below mid-1.2000s and turned positive for the second consecutive session on Wednesday, though struggled to capitalize on the move. The US dollar edged higher amid a modest uptick in the US Treasury bond yields. This, in turn, was seen as a key factor that provided a modest lift to the USD/CAD pair.
That said, any meaningful USD recovery still seems elusive amid expectations that the Fed will retain its accommodative policy stance for a longer period. Various FOMC officials eased worries about runaway inflation and reiterated that any spike in prices would be temporary, forcing investors to scale down their bets for an earlier than anticipated Fed lift-off.
On the other hand, a more hawkish Bank of Canada might continue to lend support to the Canadian dollar. Apart from this, a bullish sentiment surrounding crude oil prices could further act as a tailwind for the commodity-linked loonie and cap the upside for the USD/CAD pair. This, in turn, warrants some caution before positioning for any further appreciating move.
There isn’t any major market-moving economic data due for release on Wednesday, either from the US or Canada. Hence, the US bond yields will continue to play a key role in influencing the USD. This, along with oil price dynamics, might provide some impetus to the USD/CAD pair and allow traders to grab some short-term opportunities.
Technical levels to watch
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