USD/CAD sticks to modest intraday gains, lacks follow-through beyond 1.2700 mark

• USD/CAD regained positive traction on Tuesday and reversed a part of the overnight losses.
• Rising US bond yields helped revive the USD demand and extended some support to the pair.
• Crude oil prices consolidated below the seven-year high and did little to influence the loonie.

The USD/CAD pair traded with a positive bias heading into the European session and was last seen trading near the daily high, just below the 1.2700 mark.

The pair once again found some support and attract fresh buying in the vicinity of the 1.2655-1.2650 support zone amid a goodish pickup in the US dollar demand on Tuesday. Speculations that the Fed would adopt a more aggressive policy response to contain stubbornly high inflation triggered a fresh leg up in the US Treasury bond yields and underpinned the greenback.

In fact, the markets have been pricing in the possibility of a full 50 bps rate hike at the March FOMC meeting. The bets were further boosted by Friday's mostly upbeat US employment details, which pointed to the underlying strength in the labour market. This, in turn, pushed the yield on the benchmark 10-year US government bond back closer to the 2.0% threshold.

Apart from this, the prevalent cautious mood – as depicted by a softer tone around the equity markets – also benefitted the greenback's relative safe-haven status. That said, the recent bullish run in crude oil prices to a seven-year high continued lending some support to the commodity-linked loonie and kept a lid on any meaningful gains for the USD/CAD pair.

Nevertheless, the pair has now recovered a part of the previous day's slump and remains at the mercy of the USD price dynamics. In the absence of any major market-moving economic releases from the US, the US bond yields will continue to influence the USD demand. This, along with oil price dynamics, should provide some meaningful impetus to the USD/CAD pair.

Technical levels to watch