USD/CAD hangs near weekly lows, below 1.2600 mark

• USD/CAD met with some fresh supply on Wednesday and edged back closer to weekly lows.
• A modest pickup in crude oil prices underpinned the loonie and exerted downward pressure.
• Rebounding US bond yields acted as a tailwind for the USD and might help limit the downside.

The USD/CAD pair extended its steady intraday descent through the early European session and dropped to fresh daily lows, around the 1.2585 region in the last hour.

The pair struggled to capitalize on the previous day's modest bounce, or find acceptance above the 1.2600 mark and met with some fresh supply on Wednesday. The downtick was exclusively sponsored by a modest pickup in crude oil prices, which tend to underpin demand for the commodity-linked loonie. Bulls seemed rather unimpressed, rather shrugged off a modest US dollar strength.

Oil prices reversed the overnight losses and remained supported by the API report, which showed a bigger-than-expected fall in US inventories. The positive move could also be attributed to some repositioning trade ahead of the OPEC+ meeting. Expectations are that the cartel will stick to the plan to increase supply by 400,000 barrels per day each month through December.

On the other hand, a strong follow-through momentum in the US Treasury bond yields acted as a tailwind for the greenback. That said, uncertainty over the Fed's tapering plan and fading hopes for an early lift-off might keep a lid on any meaningful upside for the buck. This, in turn, suggests that the path of least resistance for the USD/CAD pair remains to the downside.

Market participants now look forward to the US economic docket, highlighting the releases of the ADP report on private-sector employment and ISM Manufacturing PMI. This, along with the US bond yields, will influence the USD. Apart from this, oil price dynamics might provide some meaningful impetus to the USD/CAD pair and allow traders to grab short-term opportunities.

Technical levels to watch