USD/CAD struggles near weekly lows, remains vulnerable below 1.2500 mark

The USD/CAD pair maintained its offered tone through the early European session and was last seen hovering near daily lows, around the 1.2475-70 regio  |  23/04/2021 08:51
  • A combination of factors prompted some fresh selling around USD/CAD on Friday.
  • The USD remained depressed near multi-week lows amid reduced Fed rate hike bets.
  • An uptick in crude oil prices underpinned the loonie and contributed to the selling bias.

The USD/CAD pair maintained its offered tone through the early European session and was last seen hovering near daily lows, around the 1.2475-70 region.

Following the previous day's directionless price moves, the pair witnessed some fresh selling pressure on Friday and has now moved well within the striking distance of the post-BoC swing lows. The downfall was sponsored by the prevalent bearish sentiment surrounding the US dollar and positive crude oil prices, which tend to underpin the commodity-linked loonie.

Investors seem convinced with the view that any spike in inflation is likely to be temporary and have been scaling back their expectations for an earlier than anticipated Fed lift-off. This, to a larger extent, offset an uptick in the US Treasury bond yields and kept the USD bulls on the defensive near multi-week lows through the first half of the trading action.

On the other hand, a more hawkish forward guidance by the BoC extended some support to the Canadian dollar. The Canadian central bank, at its policy meeting held on Wednesday, brought forward its guidance for the first interest rate hike to the second half of 2022. This, along with a follow-through recovery in oil prices, acted as a headwind for the USD/CAD pair.

In fact, WTI crude oil built on the previous day's recovery from over one-week lows and was supported by expectations for higher fuel demand in the US and Europe amid easing lockdown restrictions. That said, renewed fears about another dangerous wave of coronavirus infections in Japan and India – the world's third-biggest oil importer – capped gains for the commodity.

From a technical perspective, the USD/CAD pair, so far, has been struggling to register any meaningful recovery or find acceptance above the 1.2500 psychological mark. This, in turn, suggests that the bearish pressure might still be far from being over. A subsequent fall below the 1.2460 region (weekly lows) will add credence to the negative outlook and set the stage for further weakness.

Market participants now look forward to the US economic docket, highlighting the release of the flash Manufacturing and Services PMI prints. The data will offer fresh insight into how the economy is performing and influence the USD. This, along with oil price dynamics, should allow traders to grab some short-term opportunities around the USD/CAD pair.

Technical levels to watch

 

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