USD/CAD jumps to near one-month tops, further beyond 1.2800 mark

• A combination of factors pushed USD/CAD higher for the third successive day.
• Weaker oil prices undermined the loonie and remained supportive of the move.
• Hawkish Fed expectations, the risk-off impulse benefitted the safe-haven USD.

The USD/CAD pair added to its strong intraday gains and climbed to one-month tops, further beyond the 1.2800 mark heading into the European session.

A combination of factors assisted the USD/CAD pair to build on last week's positive move from the 1.2600 round figure and continue scaling higher for the third successive day. A weaker tone around crude oil prices undermined the commodity-linked loonie ahead of the Canadian federal election on Monday. This, along with a broad-based US dollar strength, provided an additional boost to the major.

Despite signs of easing inflationary pressures in the US, the incoming macro data pointed to the continuation of the economic recovery. The optimism has been fueling speculations that the Fed would begin rolling back its massive pandemic-era stimulus sooner rather than later. This was evident from the recent surge in the US Treasury bond yields, which continued acting as a tailwind for the USD.

Apart from this, the risk-off impulse – as depicted by a selloff in the equity markets – further benefitted the greenback's relative safe-haven status. Investors remain worried about the fast-spreading Delta variant and a global economic slowdown. This, along with the re-escalation of tensions between China and Western countries, namely the US, UK and Australia, took its toll on the risk sentiment.

With the latest leg up, the USD/CAD pair reaffirmed Friday's bullish breakout through the 1.2700 mark and seems poised to climb further. Investors, however, might turn cautious ahead of the political uncertainty and the key central bank event risk. The Fed is scheduled to announce its decision on Wednesday, which will influence the USD price dynamics and provide a fresh directional impetus.

Moreover, RSI on hourly charts is already flashing slightly overbought conditions. This makes it prudent to wait for some consolidation or a modest pullback before positioning for any further appreciating move. Nevertheless, the bias still seems tilted in favour of bullish traders amid absent relevant market-moving economic releases, either from the US or Canada.

Technical levels to watch