- USD/CAD remained on the defensive for the second consecutive session on Friday.
- The risk-on impulse weighed on the safe-haven USD and exerted some pressure.
- A goodish pickup in oil prices underpinned the loonie and added to the selling bias.
The USD/CAD pair traded with a mild negative bias heading into the European session and was last seen hovering near daily lows, just below mid-1.2600s.
A combination of factors failed to assist the pair to capitalize on the previous day's late rebound from the 1.2625-20 region and exerted some pressure for the second consecutive session on Friday. A goodish pickup in crude oil prices underpinned the commodity-linked loonie. On the other hand, the risk-on impulse in the markets acted as a headwind for the safe-haven US dollar and contributed to the offered tone surrounding the USD/CAD pair.
That said, firming market expectations that the Fed will begin rolling back its massive pandemic-era stimulus sooner rather than later should help limit any deeper losses for the greenback. This was reinforced by Fed Governor Michelle Bowman's remarks on Thursday, saying that the central bank was close to announcing the start of tapering. This was in line with a slew of hawkish comments from various Fed officials this week.
Apart from this, Thursday's better-than-expected release of the US Weekly Initial Jobless Claims, which fell to the lowest level since the pandemic struck in March 2020, could lend support to the USD. The data offered further evidence that a sharp slowdown in hiring during August was due to labour shortages rather than weak demand for workers. This, in turn, warrants caution before placing aggressive bearish bets around the USD/CAD pair.
Market participants now look forward to Friday's economic docket, highlighting the release of the Canadian monthly jobs report and the US Producer Price Index. This, along with the US bond yields and the broader market risk sentiment, will influence the greenback. Traders might further take cues from oil price dynamics for some short-term impetus.
