- USD/CAD gained some positive traction on Tuesday, although it lacked solid follow-through.
- Bullish oil prices continued to underpin the Canadian dollar and acted as a headwind for the pair.
- A good recovery in USD demand extended support and limited any significant downside.
USD/CAD trimmed a significant portion of its intraday gains and was last seen trading around 1.2600, up 0.10% on 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 underpin the commodity-linked Canadian dollar.
After OPEC and its allies, collectively known as OPEC+, decided to keep a cap on crude supplies.
Oil prices remained well supported near seven-year highs.
OPEC+ was concerned that a fourth global wave of COVID-19 infections could affect the recovery in demand.
The committee ignored international calls to boost production. An improved US dollar strength offset this and limited the downside to the USD/CAD pair, at least for the moment
USD continued to gain support from market expectations
The USD continued to gain support from market expectations that the Fed would begin to roll back its massive pandemic-era stimulus.
The markets have also begun pricing in a rate hike in 2022. Beyond that, a modest rally in U.S Treasury yields could continue to act as a tailwind for the dollar.
Nevertheless, a rally in equity markets prevented traders from making aggressive bets on the dollar as a safe haven.
We recommend caution before positioning for any firm near-term direction ahead of this week’s closely watched monthly jobs reports for the U.S. (NFP) and Canada, both due on Friday.
Meanwhile, traders may follow cues from Tuesday’s release of the US ISM services PMI. In addition, US bond yields and a speech by Fed Governor Randal Quarles will affect the USD.
Apart from this, oil price dynamics would further help traders to take advantage of some short-term opportunities around the USD/CAD pair.