USD/CAD holds steady above 1.2500 mark, lacks follow-through

• USD/CAD edged higher for the third successive session on Tuesday.
• A subdued USD demand capped gains amid a modest uptick in oil.

The USD/CAD pair held on to its modest intraday gains above the key 1.2500 psychological mark through the first half of the European session, albeit lacked any follow-through buying.

The pair built on its recent bounce from the 1.2425-20 support zone and edged higher for the third consecutive session on Tuesday, though a combination of factors capped any meaningful gains. The US dollar remained depressed amid dovish Fed expectations and was further pressured by Monday's disappointing US ISM Manufacturing PMI.

Investors now seem convinced that the Fed will wait for a longer period before slowing its massive monetary support. Apart from this, the risk-on impulse in the markets was seen as another factor that undermined the safe-haven greenback. That said, a solid rebound in the US Treasury bond yields helped limit any deeper losses for the buck.

Meanwhile, a modest uptick in crude oil prices underpinned the commodity-linked loonie and further acted as a headwind for the USD/CAD pair. Expectations for a continuous decline in US oil inventories assisted the black gold to recover a part of the previous day's heavy losses triggered by concerns over the fast-spreading Delta variant of the coronavirus.

There isn't any major market-moving economic data due for release on Tuesday, either from the US or Canada. Hence, the broader market risk sentiment and the US bond yields will influence the USD. Apart from this, traders might further take cues from oil price dynamics for some short-term opportunities around the USD/CAD pair.

Technical levels to watch