- Sliding oil prices undermined the loonie and assisted USD/CAD to gain some positive traction.
- Uncertainty over the Fed’s tapering plan kept the USD bulls on the defensive and capped gains.
The USD/CAD pair edged higher through the early European session and climbed to fresh daily tops, closer to mid-1.2500s in the last hour.
The pair managed to gain some positive traction on the first day of a new trading week and finally broke out of a three-day-old range. The uptick was sponsored by weaker crude oil prices, which tend to undermine demand for the commodity-linked loonie. That said, a subdued US dollar price action held bulls from placing aggressive bets and might keep a lid on any runaway rally for the USD/CAD pair.
WTI crude oil prices fell for the third successive session on Monday amid worries that the fast-spreading Delta variant of the coronavirus could derail the global economic recovery. The market concerns were further fueled by disappointing macro releases from China (a major consumer of oil), which pointed to a surprisingly sharp slowdown in the world's second-largest economy.
On the other hand, uncertainty about the likely timing on when the Fed will begin tapering its asset purchases kept the US dollar bulls on the defensive and capped the upside for the USD/CAD pair. As investors looked past blockbuster US jobs report for July, signs of moderating inflationary pressure kept a lid on the recent USD rally. Adding to this, a sharp fall in the US consumer confidence forced investors to scale back their bets for an early tightening of the policy by the Fed.
This was evident from the ongoing decline in the US Treasury bond yields, which was seen as another factor that acted as a headwind for the greenback. Hence, it will be prudent to wait for some strong follow-through buying beyond the very important 200-day SMA before confirming a bullish bias. This, in turn, will set the stage for a further near-term appreciating move for the USD/CAD pair amid absent relevant market-moving economic releases on Monday, either from the US or Canada.