USD/CAD consolidates in a range, holds comfortably above mid-1.2300s

• USD/CAD was seen oscillating in a range through the first half of the trading action on Monday.
• Bullish crude oil prices underpinned the loonie and capped any meaningful gains for the major.
• Elevated US bond yields acted as a tailwind for the USD and extended some support to the pair.

The USD/CAD pair bounced nearly 30 pips from the early European session lows and was last seen trading just a few pips below daily tops, around the 1.2370 region.

The pair, so far, has struggled to capitalize on last week's modest recovery move from four-month lows and continued with its subdued/range-bound price action for the second straight session on Monday. The recent bullish run in crude oil prices to multi-year tops underpinned the commodity-linked loonie. This, in turn, acted as a headwind for the USD/CAD pair amid the lack of any meaningful buying around the US dollar.

The dominant risk-on mood was seen as a key factor that weighed on the safe-haven greenback. That said, elevated US Treasury bond yields – amid prospects for an early policy tightening by the Fed – helped limit losses for USD and extended some support to the USD/CAD pair. The Fed Chair Jerome Powell reaffirmed on Friday that the US central bank remains on track to begin rolling back its massive pandemic-era stimulus.

Moreover, bets for an interest rate hike in 2022 have been rising amid expectations that the recent rally in commodity prices would stoke inflation. The markets, however, seem to have fully priced in hawkish Fed expectations, which might hold the USD bulls from placing aggressive bets. This makes it prudent to wait for a strong follow-through buying before confirming that the USD/CAD pair has bottomed out in the near term.

There isn't any major market-moving economic data due for release on Monday, either from the US or Canada. Hence, the US bond yields and the broader market risk sentiment will play a key role in driving the USD demand and provide some impetus to the USD/CAD pair. Apart from this, traders will further take cues from oil price dynamics to grab some short-term opportunities around the major.

Technical levels to watch