USD/CAD consolidates near mid-1.2700s, eyes US data/OPEC+ for fresh impetus

• USD/CAD attracted fresh buying on Tuesday amid a modest USD strength.
• Elevated US bond yields continued acting as a tailwind for the greenback.
• Bullish oil prices underpinned the loonie and capped gains ahead of OPEC+.

The USD/CAD pair reversed an intraday dip and moved back closer to the top end of its daily trading range, around mid-1.2700s during the mid-European session.

The pair attracted some dip-buying near the 1.2725-20 region on Tuesday and might now be looking to build on the previous day's solid rebound from the 100-day SMA support. The US dollar continued drawing support from elevated US Treasury bond yields and climbed to a one-and-half-week high. This, in turn, was seen as a key factor that acted as a tailwind for the USD/CAD pair.

The markets have been pricing in the possibility for an eventual Fed liftoff by May and two more rate hikes by the end of 2022. This, along with the risk-on environment, pushed the yield on the 2-year and 5-year US government bonds to leves not seen since March 2020. Moreover, the benchmark 10-year note held steady near the highest level since November 24 and underpinned the buck.

That said, the underlying bullish tone – as depicted by an extension of the recent strong runup in the equity markets – held back traders from placing aggressive bets around the safe-haven USD. Apart from this, an uptick in crude oil prices extended some support to the commodity-linked loonie and might keep a lid on any meaningful upside for the USD/CAD pair, at least for now.

Market participants now look forward to the US economic docket, highlighting the release of the ISM Manufacturing PMI and JOLTS Job Openings data for some impetus during the North American session. Apart from this, headlines coming out of the OPEC+ meeting will influence oil price dynamics and allow traders to grab some short-term opportunities around the USD/CAD pair.

Technical levels to watch