USD/CAD rebounds from seven-week low, jumps back above 1.3400 amid resurgent USD demand

The USD/CAD pair rebounds sharply from the 1.3320 area, or its lowest level since November 25 touched earlier this Friday and scales higher through the early North American session. The momentum lifts spot prices further beyond the 1.3400 mark and is sponsored by a goodish pickup in the US Dollar demand.

The USD Index, which measures the Greenback's performance against a basket of currencies, stages a solid recovery from a seven-month low and draws support from a combination of factors. Concerns about a deeper global economic downturn continue to cap any optimism in the markets. This is evident from a fresh wave of the global risk-aversion trade and benefits the safe-haven status buck. Apart from this, an intraday rally in the US Treasury bond yields offers additional support to the USD.

That said, growing acceptance that the Federal Reserve will soften its hawkish stance could act as a headwind for the US bond yields and the Greenback. In fact, the markets are now pricing in a smaller 25 bps rate hike in February. The bets were lifted by Thursday's release of the US consumer inflation figures and comments by several Fed officials. This, in turn, might hold back the USD bulls from placing aggressive bets and keep a lid on any meaningful upside for the USD/CAD pair.

Apart from this, positive Crude Oil prices could underpin the commodity-linked Loonie and contribute to capping the USD/CAD pair. Hence, it will be prudent to wait for strong follow-through buying before confirming that spot prices have formed a near-term bottom and positioning for further gains. Traders now look to the Preliminary Michigan Consumer Sentiment Index from the US for some impetus. This, along with Oil price dynamics, could allow traders to grab short-term opportunities.

Technical levels to watch