USD/CAD picks up bids around mid-1.2600s with eyes on BOC, US stimulus

USD/CAD rises to 1.2650, up 0.07% intraday, during Wednesday’s Asian session. The quote dropped the heaviest since the month-start drop the previous day amid the broad US dollar weakness and risk-on mood. However, weakness in oil prices and cautious mood in the market ahead of the key events seem to have triggered the latest corrective pullback.

Although US Treasury Secretary Janet Yellen promised $350 billion to local and state governments “as soon as possible”, also cited strong recovery hopes in 2021, global investors aren’t impressed. The reason could be traced from the US House where policymakers are jostling with the final details of the $1.9 trillion coronavirus (COVID-19) aid package, backed by US President Joe Biden.

It should be noted that the USD/CAD traders may have considered the latest weakness in oil prices, key export of Canada, as well as pre-BOC sentiment, to portray the latest upside. WTI refreshed the weekly low during a two-day pullback from a multi-month high on Tuesday as the Energy Information Administration (EIA) expected a reduction in the global oil demand growth by 60,000 barrels per day (bpd) to 5.32 million bpd in 2021, per Reuters.

It’s worth mentioning that the US dollar tracked 10-year Treasury yields to the south the previous day and favored commodities as well as Antipodeans amid risk-on mood.

Moving on, USD/CAD traders should keep their eyes on the US stimulus headlines for fresh impulse while the monetary policy updates from the Bank of Canada (BOC) as well as the US Consumer Price Index (CPI) will also be the key to watch.

Overall, USD/CAD is likely to remain depressed as risks may get a boost from the US covid aid package. Though, Treasury yield moves will be important to follow.

Technical analysis

A downside break of the two-week-old ascending trend line joins sustained trading below a downward sloping resistance line from January 28 to favor USD/CAD bears.