USD/CAD remains confined in a range, holds above mid-1.2600s ahead of US CPI

• A combination of factors continued acting as a headwind for USD/CAD on Thursday.
• Bullish oil prices underpinned the loonie and capped the upside amid weaker USD.
• The downside remains cushioned as investors await the release of the US CPI print.

The USD/CAD pair extended its sideways consolidative price move through the early North American session and remained confined in a narrow trading band, around the 1.2670 region.

The pair struggled to gain any meaningful traction and remained below the 1.2700 mark amid the underlying bullish tone around crude oil prices, which tend to benefit the commodity-linked loonie. On the other hand, a generally positive risk tone weighed on the safe-haven US dollar and acted as a headwind for the USD/CAD pair.

The downside, however, remains cushioned, at least for the time being, as investors seem reluctant and preferred to wait on the sidelines ahead of the US consumer inflation figures. It is worth mentioning that investors have been pricing in a more aggressive policy response by the Fed to contain stubbornly high inflation.

Hence, the US CPI report for January would be looked upon for fresh clues about the pace of the Fed's policy tightening cycle. This, in turn, will play a key role in driving the near-term USD demand. This, along with oil price dynamics, would help investors to determine the next leg of a directional move for the USD/CAD pair.

From a technical perspective, bulls, so far, have managed to defend support near the 1.2450 region. This should now act as a pivotal point for short-term traders, which if broken decisively will set the stage for an extension of the recent pullback from the 1.2785 region, or the monthly high touched in reaction to the stellar NFP report last week.

Technical levels to watch