- USD/CAD regained positive traction on Thursday and was supported by a combination of factors.
- Sliding US bond yields undermined the loonie and acted as a tailwind amid resurgent USD demand.
- The USD drew support from the ongoing rally in the US bond yields, which helped offset softer data.
The USD/CAD pair maintained its bid tone and held comfortably around the 1.2625-30 region through the early North American session, albeit lacked any follow-through buying.
A combination of supporting factors assisted the USD/CAD pair to regain positive traction on Thursday and move back closer to the overnight swing highs. Crude oil prices snapped three consecutive days of the winning streak on the back of concerns that rising COVID-19 infections could dent fuel demand. This, in turn, undermined the commodity-linked loonie and acted as a tailwind for the USD/CAD pair amid a goodish pickup in the US dollar demand.
The USD found some support from the recent strong move up in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond moved back above the 1.35% threshold amid expectations that the Fed might still begin rolling back its pandemic-era stimulus in 2021. The market expectations were reinforced by St. Louis Fed President James Bullard's comments, saying that he would want asset tapering to be completed by the first quarter of 2022.
This, to a larger extent, helped offset softer US macro data and the underlying bullish sentiment in the markets, which tends to weigh on the safe-haven greenback. Data released on Thursday showed that the US economy expanded by a 6.6% annualized pace during the second quarter. This was slightly better than the 6.5% estimated initially, though was short of consensus pointing to a reading of 6.7%. Separately, the US Initial Weekly Jobless rose to 353K from 349K.
Despite the supporting factor, the USD/CAD pair lacked any strong bullish conviction. Investors seemed reluctant to place any aggressive bets, rather preferred to wait on the sidelines ahead of the Fed Chair Jerome Powell's speech at the Jackson Hole Symposium. This makes it prudent to wait for some strong follow-through buying before confirming that the recent sharp pullback from YTD tops, around mid-1.2900s has run its course and positioning for any further gains.
