• Bullish crude oil prices underpinned the loonie and acted as a headwind for USD/CAD.
  • The USD build on the post-FOMC strong rally and extended some support to the pair.
  • The not so hawkish BoC capped the CAD and supports prospects for additional gains.

The USD/CAD pair maintained its bid tone through the first half of the European session, albeit has retreated a few pips from the daily high and was last seen trading just below the 1.2700 mark.

The pair continued with its struggle to find acceptance above the mentioned handle and witnessed an intraday turnaround from a near three-week high touched earlier this Thursday. Crude oil prices held steady near the seven-year high touched in the previous day amid rising tensions between Russia and Ukraine. This, in turn, underpinned the commodity-linked loonie and acted as a tailwind for the USD/CAD pair.

That said, a combination of factors extended some support and helped limit the downside. The not so hawkish Bank of Canada rate decision on Wednesday kept a lid on any meaningful gains for the Canadian dollar. In fact, the Canadian central bank decided to leave the benchmark interest rate unchanged and disappointed some investors anticipating an imminent start of the tightening cycle amid a surge in domestic inflation.

On the other hand, the Fed reaffirmed market expectations for an eventual lift-off in March. In the post-meeting press conference, Fed Chair Jerome Powell signalled a sustained battle to curb high inflation and triggered a sharp rise in the US Treasury bond yields. This, in turn, pushed the US dollar to the highest level since mid-December and supports prospects for the emergence of some dip-buying at lower levels.

The fundamental backdrop favours bullish traders, though it will be prudent to wait for a sustained strength beyond the 1.2700 mark before positioning for any further gains. Traders now look forward to the US macro data – Advance Q4 GDP, Durable Goods Orders, Weekly Jobless Claims and Pending Home Sales. This, along with the US bond yields, will influence the USD. Apart from this, oil price dynamics should produce some trading opportunities around the USD/CAD pair.

Technical levels to watch

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


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