USD/CAD drops to fresh daily low, approaches mid-1.2800s amid weaker USD

• USD/CAD witnesses fresh selling on Monday amid modest USD weakness.
• Retreating US bond yields, the risk-on impulse weighs on the safe-haven USD.
• Bearish oil prices could undermine the loonie and help limit any further losses.

The USD/CAD pair attracts fresh selling on the first day of a new week and retreats further from a nearly three-week high, around the 1.2985 area touched on Friday. The intraday downtick extends through the mid-European session and drags spot prices to a fresh daily low, around the 1.2870 region in the last hour.

The US dollar struggles to capitalize on the post-NFP strong move up and edges lower on Monday, which turns out to be a key factor exerting downward pressure on the USD/CAD pair. Retreating US Treasury bond yields, along with a generally positive tone around the equity markets, temper the greenback's relative safe-haven status. The downside, however, seems cushioned, warranting some caution before placing aggressive bearish bets.

The upbeat US monthly jobs report released on Friday lifted bets for a larger, 75 Fed rate hike move at the September policy meeting. This should act as a tailwind for the US bond yields and help revive the USD demand. Crude oil prices, meanwhile, languished near a multi-month low, which should undermine the commodity-linked loonie and further contribute to limiting any meaningful downside for the USD/CAD pair, at least for the time being.

In the absence of any major market-moving economic releases, the US bond yields and the broader market risk sentiment would play a key role in driving the USD demand. Apart from this, traders will take cues from oil price dynamics to grab short-term opportunities around the USD/CAD pair. The focus, however, would remain on the release of the US consumer inflation figures on Wednesday, which might provide a fresh directional impetus to spot prices.

Technical levels to watch