USD/CAD clings to gains above 1.2600 mark, lacks follow-through
|- A combination of supporting factors assisted USD/CAD to regain positive traction on Thursday.
- Retreating oil prices undermined the loonie and extended some support amid stronger USD.
- Investors now look forward to the US economic release for some meaningful trading impetus.
The USD/CAD pair held on to its modest intraday gains through the early European session, albeit lacked any follow-through buying. The pair was last seen trading around the 1.2615 region, up nearly 0.20% for the day.
Following the previous day's pullback of around 55 pips from the 1.2645 area, the USD/CAD pair managed to regain positive traction on Thursday and was supported by a combination of factors. The overnight strong move up in the US Treasury bond yields continued acting as a tailwind for the US dollar. Apart from this, a softer tone surrounding oil prices undermined the commodity-linked loonie and extended some support to the USD/CAD pair.
Concerns about the fast-spreading Delta variant eased after the US Food and Drug Administration (FDA) granted full approval to the Pfizer/BioNTech COVID-19 vaccine. The development now seems to have raised hopes that inoculations in the US could accelerate. Adding to this, the top US infectious disease expert, Dr Anthony Fauci, said that COVID-19 could be under control by early next year and further boosted investors' confidence.
Market participants now seem convinced that the Fed might still begin rolling back its pandemic-era stimulus in 2021. This, in turn, pushed the yield on the benchmark 10-year US government bond back closer to the 1.35% threshold and extended some support to the greenback. That said, the underlying bullish sentiment held bulls from placing aggressive bets around the safe-haven USD and failed to provide any additional boost to the USD/CAD pair.
Meanwhile, renewed concerns about fuel demand amid rising COVID-19 infections led to a modest pullback in crude oil prices, especially after a three-day rally. This was seen as a key factor that weighed on the Canadian dollar and remained supportive of a mildly bid tone surrounding the USD/CAD pair. Investors, however, seemed reluctant, rather preferred to wait on the sidelines ahead of the Fed Chair Jerome Powell's speech at Jackson Hole Symposium.
In the meantime, traders will take cues from the US economic docket, highlighting the releases of the Prelim GDP print and Weekly Jobless Claims later during the early North American session. This, along with the US bond yields, should influence the USD. Apart from this, oil price dynamics could also provide some impetus to the USD/CAD pair.
Technical levels to watch
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