USD/CAD hits one-week tops, beyond mid-1.2500s

• A combination of factors assisted USD/CAD to gain strong positive traction on Thursday.
• Retreating oil prices undermined the loonie and remained supportive amid a stronger USD.
• The USD bulls digested Powell’s dovish testimony and shrugged off sliding US bond yields.

The USD/CAD pair continued scaling higher through the early North American session and shot to fresh daily tops, further beyond mid-1.2500s in the last hour.

The pair built on the previous day's post-BoC rebound from the 1.2425 region, or one-week lows and gained some follow-through traction on Thursday. The momentum was sponsored by a combination of factors and has now lifted the USD/CAD pair well within the striking distance of the highest level since April 21 touched last week.

Crude oil prices added to the previous day's heavy losses and remained depressed for the second straight session amid the prospect of more supply from OPEC+. Saudi Arabia and the United Arab Emirates and have reportedly reached a compromise that would allow a further relaxation of output curbs beginning next month.

In fact, WTI crude oil was down nearly 1.25% for the day, which, in turn, was seen as a key factor that undermined demand for the commodity-linked loonie. Apart from this, the emergence of some fresh buying around the US dollar – amid the prevalent risk-off environment – provided an additional boost to the USD/CAD pair.

Worries about the potential economic fallout from the spread of the highly contagious Delta variant of the coronavirus took its toll on the global risk sentiment. This, to a larger extent, helped offset Fed Chair Jerome Powell's dovish testimony and extended some support to traditional safe-haven currencies, including the USD.

Meanwhile, the USD bulls seemed rather unaffected by the ongoing decline in the US Treasury bond yields and also shrugged off mixed US economic data. The US Initial Weekly Jobless Claims dropped to 360K last week as against 386K previous and the NY Fed's Empire State Manufacturing improved sharply to 43 in June.

Separately, the Philly Fed Manufacturing Index fell more than expected to 21.9 for the current month. Adding to this, Industrial Production recorded a modest growth of 0.4% as against the 0.7% increase anticipated. Next on tap will be the second day of Powell's testimony, which might provide some impetus to the USD/CAD pair.

Technical levels to watch