USD/CAD holds steady above 1.2700 mark as traders brace for US consumer inflation

• USD/CAD was seen oscillating in a narrow trading band above the 1.2700 mark on Friday.
• An uptick in crude oil prices underpinned the loonie and capped the upside for the pair.
• Hawkish Fed expectations, rising US bond yields extended some support to the greenback.
• Investors now look forward to the US consumer inflation figures before placing fresh bets.

The USD/CAD pair extended its sideways consolidative price moves through the early North American session and was last seen trading just above the 1.2700 mark.

A combination of diverging forces failed to assist the USD/CAD pair to capitalize on the post-BoC bounce from the 1.2600 neighbourhood, or a three-week low and led to a range-bound action on Friday. A modest uptick in crude oil underpinned the commodity-linked loonie and acted as a headwind for the major. Worries that the imposition of fresh COVID-19 could dent fuel demand, however, kept a lid on any meaningful gains for the black liquid.

On the other hand, the US dollar drew some support from a fresh leg up in the US Treasury bond yields, bolstered by the prospects for a faster policy tightening by the Fed. This, in turn, extended some support to the USD/CAD pair and helped limit the downside. Investors also seemed reluctant from placing aggressive bets and preferred to wait on the sidelines ahead of the US consumer inflation, which would influence the Fed's policy outlook.

The markets have been pricing in the possibility for an eventual Fed liftoff in May 2022 amid worries about the persistent rise in inflationary pressures. Hence, the latest US CPI report will be looked upon for fresh clues about the Fed's next policy move and strategy on interest rate hikes. This, in turn, will drive USD demand heading into the FOMC policy meeting on December 14-15 and provide a fresh directional impetus to the USD/CAD pair.

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