USD/CAD hangs near two-week lows, below 1.2600 mark ahead of Canadian GDP

• USD/CAD edged lower for the third consecutive day amid a broad-based USD weakness.
• Fading hopes for an early Fed lift-off, sliding US bond yields weighed on the greenback.
• A modest pullback in oil prices undermined the loonie and might help limit the downside.

The USD/CAD pair remained depressed through the first half of the European session and was last seen trading near two-week lows, around the 1.2575-70 region.

The pair struggled to capitalize on the previous day's modest bounce, instead met with some fresh supply on Tuesday and edged lower for the third successive session. The US dollar selling bias remained unabated through the first half of the trading action, which, in turn, was seen as a key factor exerting pressure on the USD/CAD pair.

Uncertainty over the likely timing of the Fed's taper plan, along with reduced odds for an earlier than anticipated lift-off continued acting as a headwind for the greenback. The Fed Chair Jerome Powell – during the highly-anticipated speech at the Jackson Hole Symposium on Friday – reassured that the US central bank is in no hurry to raise interest rates.

Powell's remarks were interpreted as dovish, which was evident from the ongoing decline in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond dropped back to 1.27%. This, along with a generally positive risk tone, undermined the safe-haven greenback and dragged the USD/CAD pair lower.

That said, a modest pullback in crude oil prices held traders from placing aggressive bullish bets around the commodity-linked loonie and helped limit deeper losses for the USD/CAD pair. Hence, it will be prudent to wait for some strong follow-through selling before traders start positioning for an extension of the recent sharp pullback from YTD tops.

Market participants now look forward to the release of the Canadian GDP report for some meaningful impetus during the early North American session. From the US, Chicago PMI and the Conference Board's Consumer Confidence Index will influence the USD. Traders might further take cues from oil price dynamics for some trading opportunities around the USD/CAD pair.

Technical levels to watch