- USD/CAD gained positive traction on Tuesday, though the uptick lacked follow-through buying.
- A softer tone around US bond yields held back the USD bulls from placing bets and capped gains.
- Retreating oil prices undermined the loonie and might continue to act as a tailwind for the major.
The USD/CAD pair retreated built on the overnight bounce from its lowest level since April 21 and gained some follow-through traction during the first half of trading on Tuesday. The momentum pushed spot prices to a three-day high, though ran out of stead near the 1.2615-1.2620 region.
The US dollar trimmed a part of its intraday gains amid a softer tone surrounding the US Treasury bond yields, which, in turn, acted as a headwind for the USD/CAD pair. That said, a combination of factors continued lending some support to the major and helped limit the downside, at least for now.
The market sentiment remains fragile amid concerns that a more aggressive move by major central banks to constrain inflation could pose challenges to global economic growth. This, along with the recent sharp rise in the US Treasury bond yields, underpinned demand for the safe-haven greenback.
The global supply chain disruption caused by the Russia-Ukraine war could push consumer prices higher and force the Fed to tighten its monetary policy at a faster pace. This, in turn, lifted the yield on the benchmark 10-year US government bond back above 3.0% and could offer support to the buck.
Hence, the market focus will remain on the release of the US CPI report on Friday. In the meantime, the ongoing pullback in crude oil prices from a nearly three-month top could weigh on the commodity-linked loonie and warrant caution before placing bearish bets around the USD/CAD pair.
Market participants now look forward to the release of trade balance data from the US and Canada, which might provide some impetus to the USD/CAD pair later during the early North American session. Traders will further take cues from the USD/oil price dynamics to grab short-term opportunities.
