- USD/CAD witnessed some selling on Wednesday and dropped back closer to the weekly low.
- Rallying oil prices underpinned the loonie and exerted pressure amid a subdued USD demand.
- Rising Fed rate hike bets acted as a tailwind for the USD and helped limit losses for the major.
The USD/CAD pair remained on the defensive through the early European session, albeit has managed to recover a few pips from the daily swing low, around the 1.2725 region. The pair held steady around mid-1.2700s and had a rather muted reaction to the US ADP report.
Crude oil prices rallied nearly 4% on Wednesday and recovered a major part of the previous day's downfall to the lowest level since August 23. This, in turn, boosted demand for the commodity-linked loonie and prompted fresh selling around the USD/CAD pair amid a subdued US dollar price action.
A sharp turnaround in the global risk sentiment turned out to be a key factor that acted as a headwind for the safe-haven greenback and further contributed to the selling bias surrounding the USD/CAD pair. Investors now seem convinced that the latest COVID-19 variant would not derail the economic recovery.
Further supporting the upbeat market mood were comments by the World Health Organization (WHO) official, saying that some of the early indications are that most Omicron cases are mild. That said, increasing bets for a more aggressive policy tightening by the Fed helped limit any meaningful USD slide.
In fact, the money markets indicate the possibility of at least a 50 bps rate hike by the end of 2022. This was reinforced by a strong rally in the US Treasury bond yields, which further extended some support to the USD and assisted the USD/CAD pair to attract some buying ahead of the weekly low.
On the economic data front, the Automatic Data Processing (ADP) Research Institute reported that the US private-sector employers added 534K jobs in November. This marked a modest slowdown from the previous month's downward revised reading of 570K, though was better than the 525K anticipated.
The data failed to provide any impetus as the focus remains on Fed Chair Jerome Powell and US Treasury Secretary Janet Yellen's joint testimony before the House Financial Services Committee. Apart from this, the US ISM Manufacturing PMI could influence the greenback and the USD/CAD pair.
Technical levels to watch
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