USD/CAD struggles for a firm direction, stuck in a range around 1.2500 mark

• A combination of diverging forces failed to provide any meaningful impetus to USD/CAD.
• Bullish crude oil prices underpinned the loonie and acted as a headwind for the major.
• Surging US bond yields, the risk-off impulse benefitted the USD and extended support.

The USD/CAD pair extended its sideways consolidative price move heading into the early North American session and remained confined in a range around the 1.2500 psychological mark.

Rising geopolitical tensions in the Middle East pushed crude oil prices to a more than seven-year high, which underpinned the commodity-linked loonie and acted as a headwind for the USD/CAD pair. The downside, however, remains cushioned amid a broad-based US dollar strength, bolstered by a continual surge in the US Treasury bond yields.

In fact, the yield on the benchmark 10-year US government bond shot to the highest level since January 2020 amid growing acceptance for an eventual Fed lift-off in March. Moreover, the US 2-year notes, which are highly sensitive to rate hike expectations, surged past the 1.0% mark for the first time since February 2020 and benefitted the buck.

Meanwhile, an extended sell-off in the US bond markets tempered investors' appetite for perceived riskier assets and triggered a steep decline in the equity markets. This was seen as another factor that boosted the greenback's relative safe-haven status and helped limit any meaningful slide for the USD/CAD pair, at least for the time being.

Market participants now look forward to the release of the US Empire State Manufacturing Index, which, along with the US bond yields and the broader market risk sentiment will drive the USD demand. Apart from this, traders will further take cues from oil price dynamics to grab some short-term opportunities around the USD/CAD pair.

From a technical perspective, the pair's inability to gain any meaningful traction suggests that the recent sharp pullback from the 2021 high might still be far from being over. That said, repeated failures to find acceptance below the 1.2500 mark warrants some caution before positioning for any further near-term depreciating move.

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