USD/CAD flirts with session lows, around mid-1.2500s

The USD/CAD pair extended its steady intraday descent through the first half of the European session and refreshed daily lows, around the 1.2540-35 region in the last hour.

The pair struggled to build on the post-NFP positive move and once again faced rejection near the very important 200-day SMA amid a modest US dollar pullback from two-week tops. That said, an extension of the recent slump in crude oil prices might undermine the commodity-linked loonie and help limit any deeper losses for the USD/CAD pair.

Meanwhile, Friday's blockbuster US monthly jobs report fueled speculations that the Fed could begin tapering its asset purchases later this year. Investors also seem to have started pricing in the possibility of higher interest rates as soon as 2022, which was reinforced by an extension of the positive move in the US Treasury bond yields.

In fact, the yield on the benchmark 10-year US government bond shot beyond the 1.30% threshold. This, along with worries about the economic fallout from the fast-spreading Delta variant of the coronavirus might continue to act as a tailwind for the safe-haven greenback. This might further hold traders from placing aggressive bearish bets around the USD/CAD pair.

With the acceleration of new infections in China, worries that new COVID-related restrictions in China could slow a global recovery in fuel demand weighed on crude oil prices. WTI crude oil extended last week's steep decline and fell nearly 4% on the first day of a new trading week. This, in turn, should help limit any deeper losses for the USD/CAD pair.

There isn't any major market-moving economic data due for release on Monday, either from the US or Canada. Hence, traders might take cues from scheduled speeches by Atlanta Fed President Raphael Bostic and Richmond Fed President Thomas Barkin. This might influence the USD, which, along with oil price dynamics, might provide some impetus to the USD/CAD pair.

Technical levels to watch