USD/CAD drops to multi-day lows amid notable USD supply, rallying oil prices

The USD/CAD pair edged lower through the early European session and was last seen trading near three-day lows, around the 1.3925 region.

The pair met with some fresh supply on Tuesday and finally broke down of its overnight consolidative trading range near the key 1.40 psychological mark. The downtick was sponsored by a combination of factors – a broad-based US dollar weakness and the ongoing bullish run in crude oil prices.

The easing of lockdown restriction around the world fueled hopes about a global economic recovery from the coronavirus pandemic. This coupled with the optimism over a potential COVID-19 vaccine remained supportive of the prevalent risk-on mood and dented the USD's perceived safe-haven status.

The upbeat market mood seemed rather unaffected by concerns about worsening US-China relations. Diplomatic tensions between the world's two largest economies escalated further after China tabled national security laws for both Hong Kong and Macau, albeit did little to impress the USD bulls.

On the other hand, the commodity-linked currency – the loonie – was underpinned by some follow-through rally in crude oil prices. Signs of gradual demand recovery led to a strong rally of over 3.5% in oil prices amid increasing faith that producers will stick to commitments to cut crude supply.

It will now be interesting to see if the pair is able to attract any dip-buying at lower levels or the current fall marks the end of the recent bounce from the 1.3850 support zone. Later during the early North American session, the release of the Conference Board's US Consumer Confidence Index will now be looked upon for some short-term trading impetus.

Technical levels to watch