USD/CAD struggles for direction, stuck in a range below 1.2700 mark
|- USD/CAD was seen consolidating the overnight bounce from the post-US CPI swing lows.
- Bullish crude oil prices underpinned the loonie and kept a lid on any meaningful upside.
- The USD benefitted from rebounding US bond yields and acted as a tailwind for the pair.
The USD/CAD pair lacked any firm directional bias and seesawed between tepid gains/minor losses heading into the European session. The pair was last seen trading in the neutral territory, around the 1.2700 mark, just below multi-day tops touched earlier this Wednesday.
A combination of diverging forces failed to assist the USD/CAD pair to capitalize on the overnight solid bounce from the 1.2600 mark, instead led to a subdued/range-bound price action on Wednesday. Bullish crude oil prices underpinned the commodity-linked loonie and acted as a headwind for the USD/CAD pair. That said, a modest US dollar strength extended some support and helped limit any meaningful decline.
Tuesday's softer-than-expected US CPI report suggested that the big surge in inflation this year may have peaked and eased fears for an earlier than expected tapering by the Fed. This was evident from the steep decline in the US Treasury bond yields, which prompted some intraday selling around the USD and weighed on the USD/CAD pair. However, a turnaround in the US equity markets revived demand for the safe-haven USD.
Investors remain worried about a global economic slowdown amid the spread of the highly contagious Delta variant of the coronavirus. The concerns were further fueled by Wednesday's disappointing Chinese macro data, which underscored recent signs of slackening economic momentum in the world's second-largest economy. This, along with a modest rebound in the US bond yields, extended some support to the greenback.
Despite weaker inflation figures, investors still seem convinced that the Fed would begin rolling back its massive pandemic-era stimulus later this year. This was reinforced by an uptick in the US Treasury bond yields, which should benefit the USD. That said, might wait for a sustained move beyond the 1.2700 mark before placing aggressive bets around the USD/CAD pair ahead of the Canadian CPI report, due later during the North American session.
Technical levels to watch
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