The USD/CAD pair edged higher through the first European session and refreshed daily tops, round the 1.2555 region within the last hour.
Having defended the key 1.2500 psychological mark on Monday, the pair staged a goodish rebound from two-week lows and was supported by a sudden pickup within the US dollar demand. Despite the continued decline within the US Treasury bond yields, the USD caught fresh bids during the primary half the trading action on Tuesday and extended some support to the USD/CAD pair.
Investors remain optimistic about the US economic outlook amid the impressive pace of coronavirus vaccinations and US President Joe Biden’s spending plan. Monday’s upbeat US ISM Services PMI added to the narrative of a comparatively faster US economic recovery from the pandemic. This, along side a weaker risk tone drove some haven flows back towards the greenback.
Meanwhile, the relation trade has been fueling speculations about an uptick in US inflation and raised doubts that the Fed would retain ultra-low interest rates for a extended period. this could help limit any meaningful slide within the US bond yields, supporting prospects for extra gains for the greenback and an extension of the intraday move up for the USD/CAD pair.
However, a positive tone around petroleum prices benefitted the commodity-linked loonie and might end up to be the sole factor capping gains for the USD/CAD pair. That said, concerns that the third wave of COVID-19 infections and pandemic-related restrictions in Europe could hinder the anticipated recovery in fuel products should cap gains for the black gold.
In the absence of any major market-moving economic releases, either from the US or Canada, the USD price dynamics will still play a key role in influencing the intraday movement. Nevertheless, the mixture of things suggests that the trail of least effort for the USD/CAD pair is on the upside and intraday dips will now be seen as buying opportunity.