• A combination of factors assisted USD/CAD to edge higher for the second straight session.
  • Friday’s blockbuster NFP report, rising US bond yields continued lending support the USD.
  • Retreating oil prices undermined the loonie and remained supportive of the modest uptick.

The USD/CAD pair traded with a mild positive bias through the early European session, albeit lacked any follow-through buying and remained below the 1.2600 mark.

The pair edged higher for the second consecutive session on Monday and built on the previous session’s goodish rebound of over 50 pips from the 1.2530-25 region, or one-and-half-week lows. The uptick was sponsored by a combination of factors – a modest US dollar strength and a softer tone surrounding crude oil prices.

The USD remained well supported by Friday’s blockbuster NFP report, which added to the narrative of a relatively faster US economic recovery from the pandemic. This, along with the Biden administration’s planned stimulus of more than $2 trillion, spurred economic optimism and fueled speculations about an uptick in US inflation.

This, in turn, raised doubts that the Fed would retain ultra-low interest rates for a longer period and triggered a fresh leg up in the US Treasury bond yields. This was seen as another factor that further extended some support to the greenback and remained supportive of the USD/CAD pair’s intraday positive move.

On the other hand, a pullback in crude oil prices undermined the commodity-linked loonie and further lifted the USD/CAD pair. Against the backdrop of the OPEC+ decision to reverse its production cuts between May and July, demand concerns – amid the third wave of coronavirus infections – weighed on the black gold.

Despite the supporting factors, bulls, so far, has been struggling to push the USD/CAD pair back above the 1.2600 mark. This, in turn, warrants some caution before positioning for any further appreciating move amid relatively thin liquidity conditions. Market participants now look forward to the release of the US ISM Services PMI for a fresh impetus.

The key focus, however, will remain on the release of FOMC Meeting minutes and a scheduled speech by Fed Chair Jerome Powell on Wednesday and Thursday, respectively. Apart from this, Friday’s Canadian monthly employment details will play a key role in influencing the near-term trajectory for the USD/CAD pair.

Technical levels to watch

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