USD/CAD bounces off two-week lows, turns flat around mid-1.2700s

• A softer USD exerted some pressure and dragged USD/CAD to two-week lows on Thursday.
• A modest pullback in crude oil prices undermined the loonie and helped limit deeper losses.

The USD/CAD pair quickly recovered around 20 pips after dropping to fresh two-week lows and was last seen trading in the neutral territory, around mid-1.2700s.

The underlying bullish sentiment around the global equity markets continued exerting pressure on the safe-haven US dollar. This was seen as one of the key factors that dragged the USD/CAD pair lower for the fourth consecutive session on Thursday. However, a modest pullback in oil prices undermined the loonie and helped limit any further losses.

The increasing likelihood of additional US financial aid package and hopes for a strong global economic growth in 2021 remained supportive of increasing appetite for perceived riskier assets. The already stronger risk sentiment got an additional boost after the UK regulators approved the use of AstraZeneca/Oxford coronavirus vaccine on Wednesday.

Meanwhile, worries about the discovery of a new faster-spreading variant of coronavirus and the imposition of strict lockdown/travel restrictions in the UK dampened hopes for a fuel demand recovery. This, in turn, led to some weakness in oil prices, which weighed on the commodity-linked Canadian dollar and extended some support to the USD/CAD pair.

Apart from this, investors refrained from placing any aggressive bets amid typical year-end thin trading volumes. This seemed to be the only factor that assisted the USD/CAD pair to stage a modest bounce from the daily swing lows, around the 1.2730 region. However, any meaningful recovery attempt might still be seen as a selling opportunity and remain capped.

Market participants now look forward to Thursday's only release of the usual Initial Weekly Jobless Claims from the US. The data is unlikely to provide any meaningful impetus, leaving the USD/CAD pair at the mercy of the USD/oil price dynamics.

Technical levels to watch