- A combination of factors prompted some selling around USD/CAD on Monday.
- The risk-on mood weighed on the safe-haven USD and exerted some pressure.
- An uptick in oil prices underpinned the loonie and contributed to the downfall.
The USD/CAD pair edged lower through the Asian session and was last seen hovering near the lower end of its daily trading range, below the 1.2700 mark.
The pair witnessed some fresh selling on the first day of a new trading week and eroded a part of the previous session's strong intraday positive move to the 1.2740 region. The downtick was sponsored by a softer tone surrounding the US dollar and a modest pickup in crude oil prices, which tend to underpin the commodity-linked loonie.
Expectations of more aggressive fiscal spending in 2021 under Joe Biden's presidency helped offset worries about the potential economic fallout from the ever-increasing coronavirus cases. This, in turn, remained supportive of the underlying bullish sentiment in the financial markets and dented the greenback's relative safe-haven status.
Meanwhile, the optimism that additional US fiscal stimulus measures will boost economic recovery, to a larger extent, negated concerns about global fuel demand. This was evident from an uptick in crude oil prices, which benefitted the Canadian dollar. This was seen as another factor that contributed to the offered tone surrounding the USD/CAD pair.
That said, the risk-on mood, along with the likelihood of a larger government borrowing pushed the US Treasury bond yields higher. This might extend some support to the USD and limit any meaningful downside for the USD/CAD pair, at least for the time being, amid absent relevant market-moving economic releases, either from the US or Canada.
In the meantime, the US fiscal stimulus headlines might influence the USD price dynamics and produce some short-term trading opportunities around the USD/CAD pair. The key focus, however, will be on the FOMC policy decision on Wednesday. This will be followed by the release of Advance US Q4 GDP report on Thursday, which should provide a fresh directional impetus.
Technical levels to watch
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