USD/CAD drops to fresh weekly low, eyeing 1.2800 ahead of Canadian GDP/US macro data

• USD/CAD witnessed some selling for the third successive day and refreshed weekly low on Thursday.
• Retreating crude oil prices undermined the loonie and helped limit losses amid a modest USD strength.
• Investors now look forward to Canadian GDP/US macro releases for some meaningful trading impetus.

The USD/CAD pair edged lower through the first half of the European session and dropped to a fresh weekly low, around the 1.2820-15 region in the last hour.

Following an early uptick to the 1.2855 area, the USD/CAD pair met with a fresh supply on Thursday and drifted into the negative territory for the third successive day. The downtick dragged the pair further away from the YTD low touched earlier this week, though a combination of factors helped limit any deeper losses.

Crude oil prices struggled to capitalize on this week's solid rebound from the $68.00 neighbourhood and witnessed a modest pullback from the vicinity of the monthly high. This, in turn, undermined the commodity-linked loonie and extended some support to the USD/CAD pair amid a modest pickup in demand for the US dollar.

The greenback drew some support from an uptick in the US Treasury bond yields and the Fed's hawkish Fed outlook. It is worth recalling that the so-called dot-plot indicated that the Fed could hike interest rates at least three times next year. That said, the risk-on mood acted as a headwind for the safe-haven buck.

The global risk sentiment remained well supported by the recent optimism led by reports that the current vaccines may be more effective than first thought in fighting the new variant. Adding to this, a South African study suggested reduced risks of hospitalisation and severe disease in people infected with Omicron compared with the Delta strain. This further boosted investors' appetite for perceived riskier assets.

Market participants now look forward to the US economic docket – highlighting the release of Core PCE Price Index and Durable Goods Orders data later during the early North American session. This, along with the broader market risk sentiment, will drive the USD demand and provide some impetus to the USD/CAD pair.

Traders will further take cues from the release of the monthly Canadian GDP print for November. Apart from this, oil price dynamics will influence the Canadian dollar and produce some short-term trading opportunities around the USD/CAD pair heading into the end-of-year holiday season.

Technical levels to watch