USD/CAD trades with modest losses, around 1.2665-60 region

The USD/CAD pair remained on the defensive heading into the European session and was last seen trading with modest losses, around the 1.2665 region.

A combination of diverging forces failed to assist the USD/CAD pair to capitalize on Friday's strong rally of over 110 pips and led to a subdued/range-bound price action on the first day of a new week. WTI crude oil prices jumped back above the $70.00/barrel mark and underpinned the commodity-linked loonie. However, a broad-based US dollar strength extended some support to the major and helped limit any meaningful decline, at least for now.

Oil prices extended the previous session's goodish move up from the $67.50 area and gained some follow-through traction on Monday amid expectations for higher demand. Apart from this, concerns over the slow restoration of supplies in the Gulf of Mexico, following the disruption caused by Hurricane Ida, extended some additional support to the black gold. That said, worried about the fast-spreading Delta variant could cap gains.

On the other hand, the US dollar was supported by expectations that the Fed would begin rolling back its massive pandemic-era stimulus sooner rather than later. The speculations were further fueled by Friday's release of the US Producer Price Index, which recorded the largest gain since November 2010 and indicated that higher inflation could persist for some time. This, in turn, might continue acting as a tailwind for the greenback.

From a technical perspective, the USD/CAD pair's inability to conquer the 1.2700 mark makes it prudent to wait for some follow-through buying before positioning for any further appreciating move. That said, the emergence of aggressive dip-buying on Friday warrants some caution for bearish traders. The set-up points to an extension of the range-bound price action amid absent relevant market-moving economic releases, either from the US or Canada.

Technical levels to watch