- USD / CAD gained some positive traction on Tuesday, although it lacked a strong following.
- Bullish oil prices continued to prop up the loonie and acted as a headwind for the pair.
- A good recovery in USD demand extended support and limited any significant declines.
The pair USD / CAD it trimmed a significant chunk of its intraday gains and was last seen trading around 1.2600, up 0.10% for the day.
The pair struggled to capitalize on its initial positive move and witnessed some selling near the 1.2630 area amid bullish crude oil prices, which tend to prop up the commodity-linked Canadian dollar. Oil prices remained well supported near seven-year highs after OPEC and its allies, collectively known as OPEC +, decided on Monday to keep a cap on crude supplies.
OPEC + was concerned that a fourth global wave of COVID-19 infections could affect the recovery in demand and ignored international calls to boost production. This, to some extent, was offset by a good recovery in the strength of the US dollar, which extended some support to the USD / CAD pair and helped limit any significant declines, at least for the time being.
The USD continued to gain support from market expectations that the Fed would begin rolling back its massive pandemic-era stimulus. Markets also appear to have begun to assess the possibility of an interest rate hike in 2022. Aside from this, a modest rally in US Treasury yields could continue to act as a tailwind for the dollar.
That said, a solid rally in equity markets prevented traders from placing aggressive bullish bets around the dollar as a safe haven. The mixed fundamental backdrop warrants some caution before positioning itself for any firm short-term directions ahead of this week’s release of the monthly jobs report closely followed by the US (NFP) and Canada, both to be released. on Friday.
In the meantime, traders could follow the signals from Tuesday’s release of the US ISM services PMI. This, along with US bond yields and a scheduled speech by Fed Governor Randal Quarles, will influence the USD. Apart from this, the dynamics of the oil price would further help traders to seize some short-term opportunities around the USD / CAD pair.
Technical levels
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