- USD/CAD remained confined in a range through the first half of the trading action on Tuesday.
- Retreating oil prices undermined the loonie and extended some support amid stronger USD.
- The fundamental backdrop supports prospects for an extension of the recent recovery move.
The USD/CAD pair lacked any firm directional bias on Tuesday and oscillated in a narrow trading band, below the 1.2400 mark through the early European session.
The pair, so far, has struggled to capitalize its recent bounce from four-month lows touched last week and remained capped near the 1.2400 mark, though a combination of factors acted as a tailwind. A modest pullback in crude oil prices from multi-year tops undermined the commodity-linked loonie. This, along with a pickup in the demand for the US dollar, extended some support to the USD/CAD pair.
The USD drew some support from the emergence of heavy selling around the shared currency. This comes amid expectations for an early policy tightening by the Fed, which further assisted the buck to build on the overnight rebound from one-month lows. The Fed Chair Jerome Powell reiterated on Friday that the US central bank remains on track to begin rolling back its massive pandemic-era stimulus.
Moreover, the recent widespread rally in commodity prices has been fueling speculations about a potential interest rate hike in 2022. Investors now seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. Nevertheless, the fundamental backdrop favours bulls and supports prospects for some meaningful appreciating move for the USD/CAD pair.
Market participants now look forward to the US economic docket – featuring the releases of the Conference Board’s Confidence Index, Richmond Manufacturing Index and New Home Sales. This, along with the US bond yields and the broader market risk sentiment, might influence the USD. Traders will further take cues from oil price dynamics for some short-term impetus around the USD/CAD pair.
Technical levels to watch
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