- USD/CAD oscillated in a narrow trading band through the first half of the European session.
- Softer crude oil prices undermined the loonie and extended some support to the major.
- Modest USD weakness acted as a headwind and kept a lid on any meaningful gains.
The USD/CAD pair lacked any firm intraday direction and seesawed between tepid gains/minor losses, around the 1.2700 mark through the first half of the European session.
A combination of diverging forces failed to assist the USD/CAD pair to capitalize on the previous day's bounce from the 1.2450 area and led to subdued/range-bound price action on Wednesday. Expectations that the revival of an international nuclear agreement could return more than 1 million barrels per day of Iranian oil in the markets weighed on crude oil prices. This, in turn, undermined the commodity-linked loonie and acted as a tailwind for the major, though modest US dollar weakness capped the upside, at least for the time being.
A softer tone surrounding the US Treasury bond yields turned out to be a key factor that kept the USD bulls on the defensive. That said, speculations for a faster policy tightening by the Fed should limit the downside for the US bond yields. Investors seem convinced that the Fed would adopt a more aggressive policy response to combat stubbornly high inflation and have been pricing in the possibility of a 50 bps Fed rate hike in March. This supports prospects for the emergence of some USD dip-buying, which should extend support to the USD/CAD pair.
Bulls, however, seemed reluctant to place aggressive bets and preferred to wait on the sidelines ahead of the release of the latest US consumer inflation figures on Thursday. In the meantime, the US bond yields will continue to play a key role in influencing the USD amid absent relevant market moving economic releases. This, along with oil price dynamics, should provide some impetus to the USD/CAD pair and allow traders to grab short-term opportunities.
Technical levels to watch
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