A combination of factors failed to assist USD/CAD to preserve its intraday gains to the 1.2730 area.
Rallying oil prices underpinned the loonie and exerted some pressure amid a modest USD pullback.
The downside is likely to remain cushioned amid COVID-19 woes, warranting caution for bears.

The USD/CAD pair retreated around 50-60 pips from the early European session swing highs and dropped to fresh daily lows, around the 1.2670 region in the last hour.

The pair struggled to capitalize on its modest intraday gains, instead met with some fresh supply near the 1.2730 region and was pressured by a combination of factors. A sudden pickup in crude oil prices underpinned the commodity-linked loonie. This, along with a modest US dollar pullback from over three-and-half-month tops, exerted some pressure on the USD/CAD pair.

As investors digested a surprise build in US crude oil supplies, a generally positive risk tone provided a goodish lift to the black gold. The US crude oil supply data released from the American Petroleum Institute released on Tuesday showed a build of 806K barrels during the week ended July 16 as against a 4.079-million-barrel draw recorded in the previous week.

Meanwhile, a strong follow-through positive move in the global equity markets prompted some USD profit-taking and contributed to the USD/CAD pair’s slide. That said, worries about the economic impact of the fast-spreading Delta variant of the coronavirus might cap oil prices and lend some support to the safe-haven USD. This should help limit the downside for the USD/CAD pair.

The fundamental backdrop favours bullish traders and supports prospects for the emergence of some dip-buying amid absent relevant market-moving economic releases. This further makes it prudent to wait for some strong follow-through selling before confirming that the USD/CAD pair has topped out and positioning for any meaningful corrective fall.

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