- USD / CAD is up on Wednesday, although the rally lacks bullish conviction.
- A pullback in US bond yields acts as a headwind for the USD and limits the pair’s rise.
- Bullish oil prices benefit the CAD and prevent bulls from opening bullish positions in the pair.
- Investors also appear reluctant ahead of US data and FOMC meeting minutes.
The pair USD / CAD moves with a slight positive bias during the European session on Wednesday and remains only a few pips below the daily high around the region of 1.2715.
The pair managed to attract some buying on Wednesday and built on the previous day’s bounce from the 1.2665 area, although the rally lacked continuation buying or bullish conviction. A pullback in US Treasury yields kept the US dollar on the defensive and capped gains for the USD / CAD pair.
That said, speculation for a faster tightening of monetary policies by the Fed, coupled with a softer risk tone, extended some support to the safe-haven USD. In fact, money markets have been pricing in price the possibility of a first rate hike for May and two more increases in interest rates by the end of 2022.
This was reinforced by the fact that US 2-year notes, which are highly sensitive to expectations of rate hikes, along with 5-year notes, soared to levels not seen since February 2020 on Tuesday. In addition, the yield on the benchmark 10-year bond soared to the highest level since November 24.
Meanwhile, a prolonged selloff in US bond markets led to a corrective pullback in US tech stocks. The spillover effect was evident from generally weaker sentiment around Asian equity markets, which could further benefit the relative safe haven status of the USD.
On the other hand, the CAD, a currency pegged to commodities, got some support from rising crude prices, though signs of declining global energy demand amid a massive spike in COVID-19 cases acted like a headwind. Market concerns resurfaced after API reported that US fuel reserves rose last week.
The fundamental backdrop supports the prospects for further earnings, although investors prefer to wait for the release of the FOMC minutes later during the American session. Meanwhile, macroeconomic data from the United States (ADP report, building permits and final services PMI) could give the USD / CAD some boost.
USD / CAD technical levels
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