USD/CAD spikes to 1.2600 neighbourhood, lacks follow-through

The USD/CAD pair caught some aggressive bids during the early European session and shot to fresh daily tops in the last hour, with bulls now eyeing to conquer the 1.2600 mark.

The latest leg of a sudden spike over the past hour or so could be attributed to some aggressive buying around the US dollar, which drove some haven flows amid a sharp fall in the equity markets. Worries that the fast-spreading Delta variant of COVID-19 could derail the global economic recovery weighed on investors' sentiment and benefitted traditional safe-haven currencies.

Investors also seem concerned that the ongoing spread of COVID-19 could slow global fuel demand. Apart from this, the risk-off impulse in the markets weighed on crude oil prices. In fact, WTI crude oil has now slipped back below the $72.00/barrel, which undermined the commodity-linked loonie and was seen as another factor that provided an additional boost to the USD/CAD pair.

That said, a steep decline in the US Treasury bond yields held the USD bulls from placing aggressive bets and kept a lid on any further gains for the USD/CAD pair, at least for the time being. Hence, it will be prudent to wait for some strong follow-through buying before confirming that the recent pullback from multi-month lows has run its course and placing fresh bullish bets.

Market participants now look forward to the US economic docket, highlighting the releases of Durable Goods Orders and the Conference Board's Consumer Confidence Index. This, along with the broader market risk sentiment, will influence the USD. Traders will further take cues from oil price dynamics for some short-term opportunities around the USD/CAD pair.