USD/CAD flirts with session lows, around 1.2520-15 region

• USD/CAD edged lower on Wednesday and extended the overnight pullback from one-week tops.
• Dovish Fed expectations continued acting as a headwind for the USD and exerted some pressure.
• A softer tone around oil prices undermined the loonie and might help limit any meaningful slide.

The USD/CAD pair remained on the defensive through the early European session and was last seen trading with modest losses, around the 1.2520-15 region.

The pair edged lower during the early part of the trading action on Wednesday and moved further away from one-week lows, around the 1.2575 region touched in the previous session. The downtick was exclusively sponsored by a modest US dollar weakness, though lacked any follow-through selling.

Investors now seem convinced that the Fed will retain its ultra-lose monetary policy stance for a longer period. This, in turn, continued acting as a headwind for the greenback and exerted some pressure on the USD/CAD pair. That said, a combination of factors helped limit the downside.

Concerns that the fast-spreading Delta variant of the coronavirus could derail the global economic recovery acted as a tailwind for the safe-haven USD. Apart from this, a softer tone surrounding oil prices undermined the commodity-linked loonie and extended some support to the USD/CAD pair.

Worries that the continuous rise in new COVID-19 cases will limit fuel demand weighed on crude oil prices. However, geopolitical tensions in the Gulf, along with the overnight bullish report from the American Petroleum Institute, for now, seemed to have offset the demand concerns.

Market participants now look forward to the US economic docket, featuring the releases of the ADP report and ISM Services PMI. Traders will also take cues from the official Energy Information Administration (EIA) report on US oil inventories for some opportunities around the USD/CAD pair.

Technical levels to watch