USD/CAD refreshes session tops, around 1.2620-25 amid broad-based USD strength

• A strong follow-through USD buying assisted USD/CAD to regain positive traction on Wednesday.
• An extension of a rally in oil prices could underpin the loonie and keep a lid on any further gains.
• Investors look forward to the US ADP report on private-sector employment for a fresh impetus.

The USD/CAD pair edged higher through the early European session and climbed to fresh session tops, around the 1.2620 region in the last hour.

The pair managed to regain some positive traction on Wednesday and moved away from near one-month lows touched in the previous session, though the upside seems limited. Expectations for an early policy tightening by the Fed pushed the US dollar higher for the second successive day. This, in turn, was seen as a key factor that acted as a tailwind for the USD/CAD pair.

Investors now seem convinced that the Fed would begin rolling back its massive pandemic-era stimulus as soon as November. Adding to this, worries that the continued surge in crude oil/energy prices will stoke inflation fueled speculations about an interest rate hike in 2022. This, along with a strong move up in the US Treasury bond yields, benefitted the greenback.

Meanwhile, an extension of the recent strong bullish run in oil prices might continue to underpin the commodity-linked loonie and keep a lid on any strong gains for the USD/CAD pair. In fact, oil prices rose to the highest level since 2014 and remained well supported by OPEC+ decision to keep a cap on crude supplies, despite the international calls to boost output.

Hence, it will be prudent to wait for a strong follow-through buying beyond the overnight swing highs, around the 1.2630 region, before traders start positioning for any further appreciating move. The USD/CAD pair might then accelerate the momentum and aim to reclaim the 1.2700 round-figure mark, which should act as a key pivotal point for short-term traders.

Market participants now look forward to the release of the ADP report on the US private-sector employment, due later during the early North American session. This, along with the US bond yields, will influence the greenback demand. Traders will further take cues from oil price dynamics to grab some short-term opportunities around the USD/CAD pair.

Technical levels to watch