USD/CAD flirts with session lows, below mid-1.2600s amid rallying oil prices

• USD/CAD struggled to capitalize on an early uptick, instead met with a fresh supply near the 1.2675 area.
• Bullish crude oil prices continued underpinning the loonie and prompted some selling around the major.
• Rising US bond yields might extend support to the USD and help limit losses ahead of Powell’s speech.

The USD/CAD pair extended its intraday descent from the 1.2675 region and refreshed daily lows during the early European session. The pair was last seen hovering around the 1.2640-35 region, down around 0.10% for the day.

The pair built on the previous day's goodish rebound from sub-1.2600 levels, or weekly lows and edged higher during the early part of the trading action on Thursday. The uptick was sponsored by some US dollar strength, which remained supported by the prospects for a relatively faster US economic recovery from COVID-19.

Investors remained optimistic about the US economic outlook amid the impressive pace of coronavirus vaccinations and the progress on a massive US fiscal spending plan. The reflation trade has been fueling speculations about a possible uptick in inflation and raised doubts that the Fed would retain ultra-low interest rates.

This, in turn, pushed the US Treasury bond yields higher and extended some support to the greenback. Meanwhile, the recent sell-off in the US Treasuries took its toll on the global risk sentiment amid fears about distressed selling in other assets. This was seen as another factor that benefitted the USD's safe-haven status.

However, the bullish sentiment surrounding crude oil prices continued underpinning the commodity-linked loonie and capped gains for the USD/CAD pair, rather prompted some selling at higher levels. Oil prices got a lift from the overnight report, indicating that OPEC+ might decide against increasing output at a key meeting later this Thursday.

Hence, the focus will remain on headlines coming out of a meeting between OPEC and other major oil producers - a group referred to as the OPEC+ alliance. Apart from this, investors will also keep a close eye on Fed Chair Jerome Powell's comments on the risk of a rapid rise in borrowing costs, which will influence the USD price dynamics.

Technical levels to watch