- A combination of factors allowed USD/CAD to gain some positive traction on Tuesday.
- Concerns about rising inflationary pressure, a softer risk tone benefitted the greenback.
- Sliding crude oil prices undermined the loonie and provided a modest lift to the major.
The USD/CAD pair traded with a mild positive bias during the early European session, albeit lacked any strong follow-through buying and remained below the 1.2100 mark.
Following the previous day’s modest pullback of around 25 pips, the pair managed to gain some positive traction on Tuesday and was supported by a combination of factors. That said, the USD/CAD pair, so far, has struggled to register any meaningful recovery and remained well within the striking distance of multi-year lows, around the key 1.2000 psychological mark touched last week.
Friday’s softer NFP print tempered market expectations that the Fed could begin tapering its asset-purchases sooner rather than later. That said, investors remain worried over rising inflationary pressure. Apart from this, a softer tone around the equity markets further drove some haven flows towards the greenback and acted as a tailwind for the USD/CAD pair, at least for now.
On the other hand, some follow-through pullback in crude oil prices undermined the commodity-linked loonie. Oil prices witnessed some profit-taking from the highest level since October 2018 amid the prospects of higher Iranian exports. Hence, the focus will remain on a fresh set of talks between Iran and global powers over a nuclear accord is set to start on Thursday in Vienna.
In the meantime, traders are likely to refrain from placing any aggressive bets, rather prefer to wait on the sidelines ahead of this week’s key event/data risk. The Bank of Canada is scheduled to announce its latest monetary policy decision on Wednesday. This, along with the latest US consumer inflation figures on Thursday, will provide a fresh directional impetus to the USD/CAD pair.
In the meantime, the broader market risk sentiment and the US bond yields will continue to play a key role in influencing the USD. Traders might further take cues from oil prices dynamics to grab some short-term opportunities amid a relatively thin economic docket on Tuesday, featuring the release of Trade Balance data from the US and Canada later during the early North American session.
