- The USD / CAD was observed to fluctuate in a range during the first half of trading action on Monday.
- Bullish crude oil prices propped up the loonie and limited any significant gains for the pair.
- High US bond yields acted as a tailwind for the USD and provided some support to the pair.
The pair USD / CAD it bounced almost 30 pips from the lows at the start of the European session and was last seen trading just a few pips below the daily highs, around the 1.2370 region.
The pair, so far, has struggled to capitalize on last week’s modest recovery move from four-month lows and continued its moderate / in-range price action for the second consecutive session on Monday. The recent run up crude oil prices to multi-year highs supported the Canadian dollar pegged to commodities. This, in turn, acted as a headwind for the USD / CAD pair amid the lack of significant buying around the US dollar.
Risk appetite was seen as a key factor weighing on the safe-haven dollar. That said, high US Treasury yields, amid prospects for an early policy tightening by the Fed, helped limit USD losses and provided some support to the USD / USD. CAD. Fed Chairman Jerome Powell reaffirmed Friday that the US central bank remains on track to begin rolling back its massive pandemic-era stimulus.
Additionally, bets on an interest rate hike in 2022 have risen amid expectations that the recent spike in commodity prices would fuel inflation. Markets, however, appear to have completely discounted the Fed’s expectations, which could prevent USD bulls from placing aggressive bets. This makes it prudent to wait for a strong follow-up buy before confirming that USD / CAD has bottomed out in the near term.
There is no major market-moving economic data released on Monday, be it from the US or Canada. Therefore, US bond yields and overall market risk sentiment will play a key role in driving USD demand and provide some boost to the USD / CAD pair. Apart from this, traders will follow the signs of oil price dynamics to seize some short-term opportunities around the pair.