- USD/CAD drifted into the negative territory for the second straight session on Wednesday.
- A strong recovery in crude oil prices underpinned the loonie and exerted downward pressure.
- Surging US bond yields should act as a tailwind for the USD and help limit any deeper losses.
The USD/CAD pair extended its intraday retracement slide and dropped to fresh daily lows, below mid-1.2600s during the early North American session.
The pair struggled to capitalize on its modest intraday gains, instead met with some fresh supply near the 1.2730 region and turned lower for the second consecutive session on Wednesday. A strong follow-through recovery in crude oil prices, now up over 2% for the day, underpinned the commodity-linked loonie and prompted some selling around the USD/CAD pair.
As investors looked past Tuesday's API report, which showed a surprise build in US crude inventories, a further improvement in the global risk sentiment benefitted the black gold. The risk-on flow held traders from placing fresh bullish bets around the safe-haven US dollar, which was seen as another factor that contributed to the USD/CAD pair's decline.
However, fresh COVID-19 outbreaks involving the Delta variant has raised concerns about the short-term fuel demand outlook and might cap the upside for the black gold. Apart from this, surging US Treasury bond yields acted as a tailwind for the USD, which, in turn, should help limit any deeper losses, rather assist the USD/CAD pair to attract some dip-buying.
There isn't any major market-moving economic data due for release on Wednesday, either from the US or Canada. Hence, the spotlight will be on the official report on US crude inventories from the Energy Information Administration later during the US session. Traders might further take cues from the USD price dynamics to grab some short-term opportunities around the USD/CAD pair.
Technical levels to watch
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