USD/CAD slides to fresh session lows, around mid-1.2300s

• A combination of factors prompted fresh selling around USD/CAD on Tuesday.
• The risk-on mood, retreating US bond yields weighed on the safe-haven buck.
• Bullish crude oil prices underpinned the loonie and contributed to the decline.

The intraday USD selling bias picked up pace in the last hour and dragged the USD/CAD pair back closer to mid-1.2300s during the first half of the European session.

Having faced rejection near the 1.2400 mark, the USD/CAD pair met with some fresh supply on Tuesday and for now, seems to have stalled its recent bounce from four-month lows touched last week. The downtick was sponsored by the emergence of fresh selling around the US dollar and a modest uptick in crude oil prices, which tend to underpin the commodity-linked loonie.

The dominant risk-on mood in the markets failed to assist the safe-haven USD to capitalize on the previous day's goodish rebound from one-month lows. Apart from this, a modest decline in the US Treasury bond yields undermined the greenback. That said, expectations for an early policy tightening by the Fed should limit the USD losses and lend support to the USD/CAD pair.

The Fed Chair Jerome Powell reaffirmed last Friday that the US central bank remains on track to begin tapering its bond purchases by the end of this year. Investors also seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflation. This supports prospects for the emergence of some dip-buying around the USD.

Market participants now look forward to the US economic docket, featuring the releases of the Conference Board’s Confidence Index, Richmond Manufacturing Index and New Home Sales. This, along with the US bond yields and the broader market risk sentiment, will influence the USD. Traders will further take cues from oil price dynamics for some impetus around the USD/CAD pair.

Technical levels to watch