USD/CAD drops back closer to over one-month low, below mid-1.2600s ahead of BoC/US data

• USD/CAD continued with its struggle to capitalize on modest intraday recovery gains.
• An uptick in oil prices underpinned the loonie and acted as a headwind for the major.
• The downside seems cushioned amid sustained USD buying and ahead of the BoC.

The USD/CAD pair surrendered modest intraday gains and slipped below mid-1.2600s during the first half of the European session, back closer to over a one-month low touched the previous day.

Crude oil prices edged higher on Wednesday and reversed a major part of the overnight retracement slide from a near three-month high amid worries over a tighter global supply. European Union leaders agreed to a partial and phased ban on oil imports from Russia. Apart from this, expectations of demand recovery in China acted as a tailwind for the black liquid. This, in turn, undermined the commodity-linked loonie and capped the USD/CAD pair's attempted recovery move.

On the other hand, a generally positive risk tone forced the safe-haven US dollar to trim a part of its strong intraday gains. This was seen as another factor that attracted some intraday selling around the USD/CAD pair. That said, rising US Treasury bond yields should help limit the downside for the buck and lend support to the major. Investors might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the Bank of Canada monetary policy decision.

The Canadian central bank is widely expected to hike interest rates by another 50 bps. Hence, the focus would remain on the accompanying monetary policy statement. Traders will further take cues from the US economic docket, featuring the release of ISM Manufacturing PMI and JOLTS Job Openings later during the early North American session. This, along with the US bond yields and the market risk sentiment, will influence the USD and provide some meaningful impetus to the USD/CAD pair.

Technical levels to watch