USD/CAD rebounds from over two-week lows, jumps to mid-1.2600s

The USD/CAD pair reversed an early European session dip to over two-week lows and rallied over 50 pips in the last hour, albeit lacked follow-through. The pair was last seen trading around mid-1.2600s, up nearly 0.15% for the day.

The pair showed some resilience below the 1.2600 mark and witnessed an intraday short-covering move on the back of a broad-based US dollar strength, bolstered by surging US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond shot to the highest level since June 17 amid prospects for an early policy tightening by the Fed.

It is worth recalling that the Fed last week indicated that it will soon begin rolling back its massive pandemic-era stimulus. Moreover, the so-called dot plot showed policymakers' inclination to raise interest rates in 2022. Adding to this, several FOMC members expressed comfort with the first phase of policy tightening and underpinned the USD.

Apart from this, a turnaround in the risk sentiment – amid persistent worries about China Evergrande Group's unsolved debt crisis – further benefitted the greenback's relative safe-haven status. However, an extension of the recent bullish run in oil prices acted as a tailwind for the commodity-linked loonie and might cap the upside for the USD/CAD pair.

Market participants now look forward to Fed Chair Jerome Powell's testimony before the Senate Banking Committee. This, along with the release of the Conference Board's Consumer Confidence Index and the US bond yields, will influence the greenback. Apart from this, oil price dynamics could provide some meaningful impetus to the USD/CAD pair.

Technical levels to watch