USD/CAD hangs near two-month low, just above mid-1.2500s as traders await US CPI

• A combination of factors dragged USD/CAD to a two-month low on Wednesday.
• An uptick in the US bond yields revived the USD demand and acted as a tailwind.
• Bullish oil prices underpinned the loonie and capped gains ahead of the US CPI.

The USD/CAD pair remained on the defensive through the early European session and was last seen hovering near a two-month low, just above mid-1.2500s.

The US dollar attracted some buying amid an uptick in the US Treasury bond yields, which, in turn, was seen as a key factor that assisted the USD/CAD pair to find some support near the 1.25454 area. That said, a generally positive tone around the equity markets acted as a headwind for the safe-haven greenback and kept a lid on any meaningful recovery for the major.

Apart from this, Fed Chair Jerome Powell's less hawkish comments on Tuesday held back the USD bulls from placing aggressive bets. During his renomination hearing before the Senate, Powell said that it could take several months to decide on running down the central bank's balance sheet. This ease fears about a sudden withdrawal of monetary support and boosted investors' confidence.

On the other hand, bullish crude oil prices continued underpinning the commodity-linked loonie and further contributed to cap the upside for the USD/CAD pair. Investors also seemed reluctant and preferred to wait on the sidelines ahead of Wednesday's release of the latest US consumer inflation figures, due later during the early North American session.

Technical levels to watch