- Sustained USD buying allowed USD/CAD to build on the previous day’s strong move up.
- The risk-off impulse in the markets provided a strong boost to the already stronger USD.
- A modest uptick in oil prices did little to underpin the loonie ahead of the BoC decision.
The USD/CAD pair climbed to near two-week tops during the early European session, with bulls looking to extend the momentum beyond the 1.2700 round-figure mark.
The pair built to the previous day's strong rally of around 135 pips from the very important 200-day SMA support and gained traction for the second successive session on Wednesday. The momentum was sponsored by sustained US dollar buying and seemed unaffected by a modest pickup in oil prices, which tend to underpin the commodity-linked loonie.
Concerns that the resurgence of COVID-19 cases could derail the economic recovery took its toll on the global risk sentiment. This was evident from a sharp fall in the equity markets, which forced investors to take refuge in traditional safe-haven assets. This, along with the recent spike in the US Treasury bond yields, benefitted the USD.
In fact, the yield on the benchmark 10-year US government shot to the highest level since mid-July, around 1.385% on Tuesday amid expectations for an imminent Fed taper announcement later this year. This was seen as a key factor that assisted the USD to stage a solid rebound from one-month lows touched in reaction to dismal headline NFP print.
Meanwhile, a mildly positive tone around crude oil prices, to a larger extent, was offset by speculations for a dovish narrative from the Bank of Canada (BoC). This, in turn, acted as a headwind for the Canadian dollar and remained supportive of the USD/CAD pair's ongoing positive momentum to the highest level since August 23.
Hence, the market focus will be on the latest BoC monetary policy decision, scheduled to be announced later during the early North American session. Heading into the key event risk, bulls are likely to take a brief pause and allow the USD/CAD pair to consolidate its weekly gains amid extremely overbought RSI on hourly charts.
