USD/CAD sticks to gains near session tops, remains below 1.2700 mark

The USD/CAD pair maintained its bid tone through the first half of the European session, albeit lacked any follow-through buying. The pair was last seen trading around the 1.2680-50 region, up nearly 0.25% for the day.

The pair managed to gain some positive traction on Friday and recovered a part of the overnight slump to one-week lows amid a modest pickup in the US dollar demand. However, bullish crude oil prices continued underpinning the commodity-linked loonie and kept a lid on any meaningful gains for the USD/CAD pair, at least for now.

Uncertainty about potential risks from the debt crisis at China Evergrande Group dampened investors' appetite for perceived riskier assets and triggered a modest pullback in the equity markets. This, along with prospects for an earlier Fed rate hike move and surging US Treasury bond yields, acted as a tailwind for the safe-haven USD.

It is worth recalling that the Fed on Wednesday indicated that it will likely begin rolling back the massive pandemic-era stimulus toward the end of this year and complete the process by mid-2022. Adding to this, the so-called dot plot revealed a growing inclination among policymakers to raise interest rates in 2022.

The repricing of the likely timing of the monetary policy tightening by the Fed continued pushing the US Treasury bond yields higher. In fact, the yield on the benchmark 10-year government bond shot back above the 1.4% threshold for the first time since July on Thursday and further extended some support to the greenback.

Meanwhile, the supporting factor, to a larger extend, was offset the recent run-up in crude oil prices, back closer to July swing highs. The USD/CAD pair, so far, has struggled to reclaim the 1.2700 mark. Traders now look forward to the Fed Chair Jerome Powell's scheduled speech for some impetus later during the early North American session.

Technical levels to watch