USD/CAD clings to modest gains around mid-1.2500s, lacks follow-through
- A combination of factors assisted USD/CAD to regain positive traction on Tuesday.
- Rallying US bond yields acted as a tailwind for the USD and provided a modest lift.
- A softer tone around crude oil prices undermined the loonie and remained supportive.
The USD/CAD pair traded with a mild positive bias through the early European session and was last seen hovering near daily tops, around mid-1.2500s.
The pair regained some positive traction on Tuesday and is now looking to build on its modest bounce from sub-1.2500 levels, or over three-week lows touched in reaction to Friday's dismal headline NFP. A strong follow-through uptick in the US Treasury bond yields continued underpinning the US dollar. Apart from this, a mixed performance in the oil market undermined the commodity-linked loonie and extended some support to the USD/CAD pair.
The closely-watched US monthly jobs report showed that the economy added the fewest jobs in seven months during August. However, additional details kept alive hopes for an imminent Fed taper announcement. Investors now seem convinced that the Fed will begin rolling back its pandemic-era stimulus in November. This, in turn, pushed the yield on the benchmark 10-year US government bond back closer to the 1.35% threshold and benefitted the USD.
Meanwhile, Saudi Arabia's sharp cuts to crude contract prices for Asia was seen as a sign that consumption in the world's top-importing region remains tepid. This, along with worries about the fast-spreading Delta variant of the coronavirus, raised doubts about the outlook for the global fuel demand. This, in turn, acted as a headwind for crude oil prices, though the underlying bullish sentiment helped limit losses for the perceived riskier commodity.
Nevertheless, the USD/CAD pair, so far, has managed to hold comfortably above the very important 200-day SMA and the key 1.2500 psychological mark. However, any meaningful upside still seems elusive as investors might refrain from placing aggressive bets ahead of the key central bank event risk. The Bank of Canada (BoC) is scheduled to announce its monetary policy decision on Wednesday, which should provide a fresh directional impetus to the USD/CAD pair.
In the meantime, the USD/oil price dynamics will be looked upon for short-term trading opportunities amid absent relevant market-moving economic releases, either from the US or Canada.
Technical levels to watch