USD/CAD clings to gains near one-month tops, above mid-1.2700s

The USD/CAD pair now seems to have entered a bullish consolidation phase and was seen oscillating in a range above mid-1.2700s, or near one-month tops touched earlier this Thursday.

The pair built on its recent bounce from the key 1.2500 psychological mark and gained strong follow-through traction for the fourth successive day. The momentum pushed the USD/CAD pair to the highest level since July 20 and was sponsored by a combination of factors.

Investors now seem convinced that the Fed is comfortable to roll back the crisis-era stimulus. In fact, the minutes of the July FOMC meeting released on Wednesday revealed policymakers' assessment that progress was made towards maximum employment and price stability goals.

Expectations that the Fed will begin tapering its asset purchases sooner rather than later, along with the prevalent risk-off environment, pushed the safe-haven US dollar to nine-month tops. This, in turn, was seen as a key factor that continued driving the USD/CAD pair higher.

The USD maintained its bid tone through the early North American session and seemed unaffected by mixed US macro releases. The US Weekly Jobless Claims fell to 348K from 377K previous, while the Philly Fed Manufacturing Index dropped to 19.4 in August from 21.9.

On the other hand, the commodity-linked loonie was undermined by a further slide in crude oil prices. Worries that the fast-spreading Delta variant of the coronavirus could derail the global economic recovery and dent fuel demand dragged oil prices to near three-month lows.

Meanwhile, oscillators on hourly charts are already flashing extremely overstretched conditions and have also started moving into the overbought zone on the daily chart. This seemed to be the only factor that held bulls from placing fresh bets and capped gains for the USD/CAD pair.

Nevertheless, the fundamental backdrop remains tilted firmly in favour of bullish traders and supports prospects for an extension of the recent positive move. Hence, any meaningful dip might be seen as a buying opportunity and remain limited, at least for the time being.

Technical levels to watch