USD/CAD sticks to modest gains near one-week high, just above mid-1.2700s

• USD/CAD climbed to a one-week high on Tuesday amid a goodish pickup in the USD demand.
• Escalating Russia-Ukraine tensions, the risk-off impulse benefitted the safe-haven greenback.
• Bullish crude oil prices underpinned the loonie and might cap any further gains for the major.

The USD/CAD pair traded with a mild positive bias through the early European session and was last seen trading near a one-week high, just above mid-1.2700s.

The pair edged higher during the early part of the trading on Tuesday amid a goodish pickup in demand for the US dollar, bolstered by the global flight to safety. The recent geopolitical developments triggered a fresh wave of the risk-aversion trade and forced investors to take refuge in traditional safe-haven assets.

In fact, Russian President Vladimir Putin formally recognised two breakaway regions – Donetsk and Luhansk – in eastern Ukraine as independent entities and ordered troops to enter the area to maintain peace. This, in turn, fueled fears of a major conflict with the West and tempered investors' appetite for perceived riskier assets.

The White House, however, said that the move will not automatically trigger sanctions against Russia. Adding to this, the Russian envoy to the United Nations, Vasily Nebenzya, said during an emergency UN Security Council meeting that we remain open to a diplomatic solution and helped ease the market nervousness.

This, along with a sharp decline in the US Treasury bond yields, kept a lid on any further gains for the greenback. On the other hand, bullish crude oil prices extended some support to the commodity-linked loonie. The combination of factors might hold back bulls from placing aggressive bets and cap gains for the USD/CAD pair.

Even from a technical perspective, the pair has repeatedly failed to make it through the 1.2675-1.2685 strong resistance zone. This makes it prudent to wait for some follow-through buying beyond the said hurdle before confirming a near-term bullish bias and positioning for any further gains for the USD/CAD pair.

Market participants now look forward to the US economic docket, highlighting the release of flash PMI prints later during the early North American session. The focus, however, will remain on developments surrounding the situation in Ukraine. Apart from this, oil price dynamics should provide some impetus to the USD/CAD pair.

Technical levels to watch