USD/CAD steadily climbs above mid-1.2400s, lacks follow-through ahead of FOMC
- USD/CAD staged a modest bounce from multi-year lows touched earlier this Wednesday.
- Subdued crude oil prices undermined the loonie and extended some support to the major.
- The upside seems limited amid reluctance ahead of the FOMC monetary policy decision.
The USD/CAD pair managed to rebound around 25 pips from multi-year lows and was last seen trading with modest gains, just above mid-1.2400s.
A combination of factors assisted the pair to reverse an Asian session dip to the 1.2435 region, or the lowest level since February 2018, and recover a part of the previous day's losses. Crude oil prices languished below the $65/barrel mark, which undermined the commodity-linked loonie and extended some support to the USD/CAD pair.
Oil struggled to capitalize on the overnight bounce from four-day lows amid concerns that stalled vaccine rollouts in Europe could slow recovery in fuel demand. The temporary suspension of the Oxford/AstraZeneca coronavirus vaccine in Europe overshadowed the bullish API report, which showed an unexpected fall in the US crude inventories.
On the other hand, the prospects for a relatively faster US economic recovery continued underpinning the US dollar and further collaborated to the USD/CAD pair's modest bounce. The USD bulls seemed rather unaffected by Tuesday's disappointing US monthly Retail Sales data, instead took cues from elevated US Treasury bond yields.
The upbeat US economic outlook has been fueling speculations for a possible uptick in US inflation and raised doubts that the Fed would retain ultra-low interest rates for a longer period. This, in turn, pushed the yield on the benchmark 10-year US government bond back above 1.6%, closer to over one-year tops touched last week.
However, expectations that the Fed could take some action to curb any further rise in long-term borrowing cost acted as a headwind for the US bond yields. This was seen as the only factor that might hold bulls from placing aggressive bets and cap gains for the USD/CAD pair ahead of the FOMC policy decision, due later this Wednesday.
Technical levels to watch