USD/CAD sits near two-week tops, bulls await a sustained move beyond 1.2600 mark
- The upbeat US economic outlook, risk-off mood continued benefitting the safe-haven USD.
- A weaker tone around crude oil prices undermined the loonie and favours USD/CAD bulls.
- The pair seems poised to prolong its recovery from multi-year lows and test 50-day SMA.
The USD/CAD pair climbed to near two-week tops during the Asian session, with bulls now awaiting a sustained move beyond the 1.2600 round-figure mark.
A combination of factors continued lending some support to the pair, which now seems set to build on its solid rebound from the 1.2365 region, or the lowest level since February 2018 touched last week. The US dollar inched back closer to four-month highs on Wednesday amid the prevalent risk-off mood. Adding to this, a weaker tone surrounding crude oil prices undermined the commodity-linked loonie and further benefitted the USD/CAD pair.
The global risk sentiment took a hit after the US, EU, Britain and Canada – in a rare, coordinated move on Monday – imposed sanctions on Chinese officials for human rights abuses in Xinjiang. This, along with potential US tax hikes and concerns over a third COVID-19 wave in Europe, weighed on investors' sentiment. This comes amid growing optimism about the US economic recovery, which provided a goodish lift to the safe-haven USD.
The global flight to safety was reinforced by a further decline in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond extended its recent pullback from over a one-year high level of 1.754% touched last week, albeit did little to dent the underlying bullish sentiment surrounding the greenback.
Meanwhile, worries that a new wave of COVID-19 infections, pandemic-related lockdown and the slow vaccine rollouts in Europe could hinder the anticipated recovery in demand for fuel products. This, in turn, weighed on crude oil prices and was seen as another factor that supports prospects for a further appreciating move for the USD/CAD pair. Hence, a move towards testing the 50-day SMA, around the 1.2655-60 region, looks a distinct possibility.
Market participants now look forward to the US economic docket, highlighting the release of Durable Goods Orders and flash PMI prints (Manufacturing and Services). Apart from this, Fed Chair Jerome Powell's second day of testimony before the Senate Banking Committee will influence the USD. Traders will further take cues from oil price dynamics to grab some short-term opportunities around the USD/CAD pair.
Technical levels to watch