USD / CAD retreats around the 1.2600 level near weekly lows

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  • USD / CAD is witnessing some selling for the third day in a row on Wednesday.
  • The pullback in US bond yields and risk appetite sentiment keep USD bulls on the defensive.
  • A rebound in crude oil prices benefits the CAD and contributes to the pair’s selling bias.

The USD / CAD moves lower during the European session on Wednesday and has receded around the 1.2600 level, close to the weekly lows set on Tuesday.

After the good price movements in both directions the day before, the pair has found new sales and moves with a negative bias for the third day in a row. A combination of factors has continued to benefit the loonie, which, along with a dovish action in the price of the U.S. dollar, put some pressure on the USD / CAD during the first half of trading action on Wednesday.

Statistics Canada reported Tuesday that the national economy grew at an annualized rate of 9.6% during the fourth quarter of 2020. Furthermore, a preliminary estimate showed that GDP increased 0.5% in January, defying expectations of a contraction at the beginning of the year. Apart of this, rising crude prices have continued to prop up the loonie, currency linked to the prices of raw materials.

On the other hand, New momentum in equity markets and a softer tone around US Treasury yields has kept USD bulls on the defensive. This has been seen as another factor that has led to some selling around the USD / CAD pair. That said, the optimistic US economic outlook could extend some support for the USD and help limit any further decline in the pair.

Investors remain optimistic about a Relatively strong US economic recovery from pandemic amid progress in COVID-19 vaccination and a massive US fiscal stimulus plan. Additionally, reflation trading appears to have forced investors to price in a possible spike in inflation, raising questions about whether the Fed would keep interest rates ultra-low for a longer period.

Now it will be interesting to see if the USD / CAD pair is able to attract lower level purchases or will break below the round 1.2600 level and resume its previous well established downtrend. Market participants are now awaiting the release of the ADP Private Sector Employment Report and the US ISM Services PMI to seize some significant business opportunities.

USD / CAD technical levels

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