USD/CAD trades with modest gains below mid-1.2600s, upside seems limited
|- USD/CAD edged higher on Thursday and recovered a part of the overnight losses.
- A combination of factors might act as a headwind and cap the upside for the pair.
- Investors now look forward to important US macro data for some trading impetus.
The USD/CAD pair traded with a mild positive bias through the Asian session and was last seen trading near daily tops, just below mid-1.2600s.
The pair managed to gain some p positive traction on Thursday and recovered a part of the previous day's retracement slide from multi-day tops – levels just above the 1.2700 mark. The uptick lacked any obvious fundamental catalyst and runs the risk of fizzling out rather quickly, warranting some caution for bullish traders.
The softer US CPI report raised uncertainty over the likely timing of the Fed's tapering plan and kept the US dollar bulls on the defensive through the early part of the trading action. On the other hand, bullish crude oil prices might continue to underpin the commodity-linked loonie and act as a headwind for the USD/CAD pair.
Oil prices consolidated the overnight strong gains to the highest level since August 2 and remained well supported by a larger-than-expected drawdown in the US fuel stockpiles. The US Energy Information Administration (EIA) reported on Wednesday that crude inventories fell by 6.4 million barrels in the week to September 10.
The fundamental backdrop favours bearish traders and supports prospects for further losses. That said, investors still believe that the Fed could begin rolling back its massive pandemic-era stimulus later this year, despite signs of easing inflationary pressure in the US. This seemed to be the only factor lending support to the USD/CAD pair.
However, it remains to be seen if bulls are able to capitalize on the move as the focus now shifts to the release of important US macro data. Thursday's US economic docket highlights the releases of monthly Retail Sales, Philly Fed Manufacturing Index and the usual Initial Weekly Jobless Claims later during the early North American session.
The data might influence the USD, which along with oil price dynamics might produce some short-term trading opportunities around the USD/CAD pair.
Technical levels to watch
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