USD/CAD remains depressed below 1.2100 mark amid rallying oil prices, BoC in focus
|- A combination of factors prompted some fresh selling around USD/CAD on Wednesday.
- Sliding US bond yields weighed on the USD, rallying oil prices underpinned the loonie.
- The downside seems limited ahead of the BoC policy decision and the US CPI report.
The USD/CAD pair extended its steady intraday descent through the first half of the European session and dropped to fresh daily lows, around the 1.2085 region in the last hour.
The pair continued with its struggle to find acceptance or capitalize on the momentum beyond the 1.2100 round-figure mark and met with some fresh supply on Wednesday. The USD/CAD pair has now reversed a major part of the overnight move up and was pressured by a combination of factors.
An extension of a strong bullish run in crude oil prices underpinned the commodity-linked loonie. In fact, WTI crude built on the overnight bullish breakout through the key $70.00 psychological mark and shot to the highest level since October 2018 amid signs of strong fuel demand in western economies.
Meanwhile, the prospects of Iranian supplies returning to the market faded after the US Secretary of State Antony Blinken said that sanctions against Tehran would remain in place. This, along with Tuesday's bullish API report on US crude supply, provided an additional boost to the black gold.
On the other hand, the ongoing slide in the US Treasury bond yields kept the US dollar bulls on the defensive. That said, concerns that rising inflationary pressures might force the Fed to taper its bond purchases acted as a tailwind for the USD and might help limit losses for the USD/CAD pair.
Moreover, investors might also refrain from placing any aggressive bets, rather prefer to wait on the sidelines ahead of the latest monetary policy decision by the Bank of Canada. Apart from this, the official US crude oil supply data from the EIA will provide some impetus to the USD/CAD pair.
From a technical perspective, the USD/CAD pair’s inability to gain any meaningful traction suggests that the near-term bearish trend might still be far from being over. Hence, a subsequent fall back towards multi-year lows, around the key 1.2000 psychological mark, remains a distinct possibility.
Technical levels to watch
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