- USD/CAD regains positive traction on Tuesday and recoups some of the previous day’s losses.
- Rising US bond yields help revive demand for the USD and offer support to the pair.
- Oil prices consolidate below a seven-year high, doing little to weigh on the CAD.
The USD/CAD moves with a positive bias during the European session on Tuesday, although gives back some of the initial profits after failing to find acceptance above the 1.2700 level.
The pair found some support again and attract fresh buying near 1.2655 to 1.2650 zone amid a nice rally in US dollar demand on Tuesday. Speculations that the Fed would adopt a more aggressive policy response to contain stubbornly high inflation triggered a further rise in US bond yields, benefiting the USD.
In fact, the markets have been pricing in the possibility of a full 50 basis point interest rate hike at the March FOMC meeting. Expectations were further buoyed by mostly upbeat US employment details that pointed to underlying strength in the labor market. This, in turn, pushed benchmark 10-year US government bond yields close to the 2.00% level.
Apart of this, the prevailing cautious sentiment, as shown by a softer tone around equity markets, also benefited the safe-haven USD. That said, the recent rise in oil prices has held up, with WTI rising to a seven-year high, lending some support to CADa currency linked to commodity prices, and has capped any significant gains for the USD/CAD pair.
However, the pair has now recovered a part of the previous day’s drop. In the absence of top-tier US economic releases, US bond yields will continue to influence USD demand. This, coupled with oil price dynamics, could provide a significant boost to the USD/CAD pair.
USD/CAD technical levels
Source: Fx Street
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