- USD/CAD struggled to capitalize on Friday’s modest recovery gains from over two-week lows.
- Dovish Fed, declining US bond yields and the risk-on impulse weighed on the safe-haven USD.
- A pullback in oil prices undermined the loonie and helped limit any deeper losses for the pair.
The USD/CAD pair extended its sideways consolidative price action through the early European session and remained confined in a range above mid-1.2400s.
A combination of diverging forces failed to assist the USD/CAD pair to capitalize on Friday's modest bounce from two-and-half-week lows and led to a subdued trading action on the first day of a new week. The US dollar remained on the defensive amid dovish Fed expectations and capped the upside. However, a pullback in crude oil prices undermined the commodity-linked loonie and helped limit any losses, at least for now.
Investors now seem convinced that the Fed will wait for a longer period before slowing its massive monetary support. This, in turn, was seen as a key factor that continued acting as a headwind for the USD. Apart from this, the recent decline in the US Treasury bond yields, back closer to multi-month lows, along with the risk-on impulse in the market further undermined the greenback's relative safe-haven status.
Meanwhile, investors now seem worried that a resurgence in COVID-19 cases globally could derail the global economic recovery and slow fuel demand. This, in turn, weighed on crude oil prices and weighed on the Canadian dollar, which held traders from placing any aggressive bearish bets around the USD/CAD pair. Moreover, the range-bound price action further warrants some caution before positioning for any firm direction.
Market participants now look forward to the US economic docket, highlighting the release of ISM Manufacturing PMI later during the early North American session. Apart from this, the US bond yields and the broader market risk sentiment will influence the USD. Traders might further take cues from oil price dynamics to grab some short-term opportunities around the USD/CAD pair.
Technical levels to watch
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