USD/CAD remains depressed below 1.2600 mark, downside seems limited

The USD/CAD pair remained on the defensive through the first half of the European session and was last seen hovering near the lower end of its daily trading range, around the 1.2570 region.

Having struggled to find acceptance above the 1.2600 mark, the USD/CAD pair edged lower on the last day of the week and eroded a part of the previous day's strong gains to near three-month tops. A subdued US dollar demand was seen as a key factor that acted as a headwind for the major. Apart from this, a goodish rebound in crude oil prices underpinned the commodity-linked loonie and exerted some pressure on the pair.

A generally positive tone around the equity markets failed to assist the safe-haven greenback to capitalize on the overnight positive move. That said, a strong pickup in the US Treasury bond yields and hawkish Fed expectations helped limit the USD downside. Despite Fed Chair Jerome Powell's dovish testimony, investors seem convinced that the US central bank will tighten its policy sooner amid rising inflationary pressure.

On the other hand, the Canadian dollar found some support from an uptick in crude oil prices. However, worsening outbreaks of COVID-19 involving the Delta variant in some countries and uncertainty over the OPEC+ deal to boost supply clouded the outlook for the black gold. This, in turn, suggests that the path of least resistance for the loonie remains to the downside and supports prospects for additional gains for the USD/CAD pair.

Market participants now look forward to the US economic docket, highlighting the release of monthly Retail Sales figures later during the early North American session. This, along with the US bond yields and the broader market risk sentiment, might influence the USD and provide some impetus to the USD/CAD pair. Apart from this, oil price dynamics will further contribute to produce some short-term trading opportunities around the USD/CAD pair.

Technical levels to watch