- A modest USD pullback prompted some selling around USD/CAD on Friday.
- Hawkish Fed expectations might help limit any meaningful slide for the USD.
- Weaker oil prices could undermine the loonie and lend support to the major.
The USD/CAD pair edged lower heading into the European session and was last seen trading near daily lows, around the 1.2655-60 region.
The pair witnessed some selling during the first half of the trading action on Friday and eroded a part of the previous day's positive move amid a modest US dollar downtick. As investors digested Thursday's upbeat US economic releases, the underlying bullish sentiment in the financial markets undermined the safe-haven USD and exerted some pressure on the USD/CAD pair.
That said, expectations for an early policy tightening by the Fed should continue to act as a tailwind for the greenback and help limit any meaningful slide for the USD/CAD pair. Investors started pricing in the possibility of an imminent Fed taper announcement after the US Retail Sales data underscored consumer confidence and pointed to the continuation of economic recovery.
Apart from this, a softer tone around crude oil prices could undermine the commodity-linked loonie and lend some support to the USD/CAD pair. Even from a technical perspective, the pair has been oscillating in a range over the past one week or so. This, in turn, warrants some caution for aggressive bearish traders and before positioning for any further depreciating move.
Market participants now look forward to the release of the Prelim Michigan US Consumer Sentiment Index, due later during the early North American session. This, along with the broader market risk sentiment and the US bond yields, might influence the USD. Traders will further take cues from oil price dynamics to grab some short-term opportunities around the USD/CAD pair.