- USD/CAD regained positive traction on Tuesday amid a modest USD strength.
- Hawkish Fed expectations, an uptick in the US bond yields underpinned the USD.
- Positive oil prices might benefit the loonie and cap gains ahead of the US CPI.
The USD/CAD pair traded with a mild positive bias through the first half of the European session and was last seen hovering near daily tops, around the 1.2470-75 region.
Following the previous day's sharp pullback from levels beyond the key 1.2500 psychological mark, the USD/CAD pair managed to regain positive traction on Tuesday amid a modest US dollar strength. Expectations that the Fed is moving towards tightening its monetary policy stance sooner continued acting as a tailwind for the greenback and extended some support to the major.
It is worth recalling that the June FOMC meeting minutes released last Wednesday revealed that Fed officials agreed on the need to be ready to act if inflation or other risks materialize. Hence, the focus will remain glued to the release of the latest US consumer inflation figures, which may offer clues about the likely timing of tapering and interest rate hikes.
Apart from this, an uptick in the US Treasury bond yields was seen as another factor that underpinned the greenback. That said, a positive tone around crude oil prices might underpin the commodity-linked loonie and keep a lid on any strong gains for the USD/CAD pair. This warrants some caution for bullish traders and before positioning for any further appreciating move.
Apart from Tuesday's US CPI report, Fed Chair Jerome Powell's semi-annual congressional testimony on Wednesday and Thursday influence market expectations about the Fed's monetary policy outlook. This, along with the latest monetary policy update by the Bank of Canada on Wednesday, will play a key role in determining the next leg of a directional move for the USD/CAD pair.
Technical levels to watch
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