• A combination of factors dragged USD/CAD to a three-week low on Wednesday.
  • Crude oil shot back above the $72.00/barrel mark and underpinned the loonie.
  • Retreating US bond yields weighed on the USD and contributed to the downtick.
  • Investors now look forward to the BoC policy decision for a fresh trading impetus.

The USD/CAD pair reversed an early European session uptick and dropped to a near three-week low, around the 1.2625-20 region in the last hour.

The pair struggled to capitalize on its attempted recovery, instead met with a fresh supply near the 1.2665 area and turned lower for the third successive day on Wednesday. Crude oil prices reversed an intraday dip and climbed back above the $72.00/barrel mark easing concerns about the impact of the new coronavirus variant on the global fuel demand. This, in turn, underpinned the commodity-linked loonie and exerted some downward pressure on the USD/CAD pair.

On the other hand, the US dollar was pressured by retreating US Treasury bond yields and a generally positive risk tone. This was seen as another factor that contributed to the USD/CAD pair’s modest intraday downtick. That said, a combination of factors acted as a tailwind for the greenback and should help limit the downside for the USD/CAD pair. This warrants some caution for aggressive bearish traders and before positioning for any further downfall.

Investors seem convinced that the Fed would tighten its monetary policy sooner rather than later to contain stubbornly high inflation. In fact, the money markets indicate a high possibility for an eventual liftoff in May 2022. Hence, the market focus will remain glued to Friday’s release of the latest US consumer inflation figures. The CPI report will drive the USD demand in the near term and provide a fresh directional impetus to the USD/CAD pair.

Traders also seemed reluctant, rather preferred to wait on the sidelines ahead of the Bank of Canada monetary policy meeting. The outcome is scheduled to be announced later during the early North American session. This, along with oil price dynamics, will influence the Canadian dollar and produce some meaningful trading opportunities around the USD/CAD pair amid absent relevant market moving economic releases.

Technica levels to watch

This article was originally published by Fxstreet.com.Read the original article here.

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