- USD/CAD returned to close to a two-week low amid the onset of fresh dollar selling.
- The decline in US bond yields weighed on the dollar, although bets on a Fed rate hike should limit losses.
- Weakening crude oil prices could undermine the loonie and help limit deeper losses for the pair.
The pair USD/CAD came under renewed selling pressure on Thursday and reversed much of the overnight bounce from a two-week low. The pair maintained its bid tone through the middle of the European session and was last seen trading near the lower end of its daily range just above 1.2800.
The Canadian dollar was supported by strong domestic consumer inflation figures released on Wednesday, which showed no signs of easing and rose 6.8% year-on-year in April, the fastest pace since 1991. The data suggests it is unlikely to The Bank of Canada slows the pace of rate hikes amid a strong labor market, which tends to push prices higher.
On the other hand, the decline in US Treasury bond yields attracted fresh selling around the dollar, which was seen as another factor putting downward pressure on the USD/CAD pair. The combination of factors helped offset modest weakness in crude prices, which did nothing to undermine the commodity-linked loonie or support the pair.
That said, the prospect of more aggressive policy tightening by the Fed should act as a tailwind for US bond yields. Apart from this, the prevailing risk environment is supportive of the prospects for some dollar buying and should help limit deeper USD/CAD losses. This, in turn, warrants some caution for aggressive bearish traders.
Market participants now await the US economic docket, in which the Philadelphia Fed manufacturing index, the usual weekly jobless claims and existing home sales data will be released. This, along with US bond yields, will weigh on the dollar. Traders will follow oil price dynamics to take advantage of short-term opportunities around the USD/CAD pair.
Technical levels
Source: Fx Street
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