USD/CAD refreshes session lows post-Canadian CPI, lacks follow-through

The USD/CAD pair refreshed daily lows in reaction to hotter-than-expected Canadian consumer inflation figures, with bears now looking to extend the momentum further below the 1.2600 mark.

Following a brief consolidation through the early North American session, the USD/CAD pair witnessed some selling after the headline Canadian CPI smashed expectations and rose 0.6% in July. The yearly rate also surpassed consensus estimates and came in at 3.3%, making a notable increase from the 2.7% recorded in June.

Adding to this, the Bank of Canada's core CPI (excluding the most volatile items) climbed 0.6% MoM and 3.3% YoY, again beating estimates for a reading of 0.1% and 2.8%, respectively. Apart from this, a goodish rebound in crude oil prices underpinned the commodity-linked loonie and exerted some pressure on the USD/CAD pair.

On the other hand, diminishing odds for an early policy tightening by the Fed kept the US dollar bulls on the defensive. This was seen as another factor that dragged the USD/CAD pair lower, marking the first day of a negative move in the previous three. That said, a combination of factors helped limit any further losses.

Worries about the economic fallout from the fast-spreading Delta variant of the coronavirus, along with political tensions in Afghanistan weighed on investors' sentiment. Adding to this, a strong pickup in the US Treasury bond yields, acted as a tailwind for the safe-haven USD and extended some support to the USD/CAD pair.

Moreover, investors also seemed reluctant to place any aggressive bets, rather preferred to wait for fresh impetus from Wednesday's release of the FOMC meeting minutes. Nevertheless, the USD/CAD pair has now eroded a part of the overnight gains to four-week lows, though the lack of follow-through selling warrants caution for bearish traders.

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