USD/CAD flirts with session lows, around 1.2600 mark

• USD/CAD drifted into the negative territory for the second successive session on Monday.
• Fading hopes for an early Fed lift-off, the risk-on mood weighed on the safe-haven greenback.
• The recent bullish run in crude oil underpinned the loonie and contributed to the selling bias.

The USD/CAD pair dropped to fresh daily lows heading into the North American session, with bears now looking to extend the slide further below the 1.2600 mark.

The pair struggled to capitalize on its modest intraday uptick, instead met with some fresh supply near the 1.2635 region and turned lower for the second consecutive session on Monday. The US dollar remained on the defensive amid fading hopes for an earlier than anticipated Fed lift-off.

The Fed Chair Jerome Powell – during the highly anticipated speech at the Jackson Hole Symposium – warned of the downside risks posed by the rapid spread of the Delta variant. Powell also downplayed market speculations and reassured that the Fed was in no hurry to raise rates.

The repricing of the likely timing of the Fed's move to tighten its monetary policy dragged the yield on the benchmark 10-year US government bond back closer to the 1.30% threshold. This, along with the underlying bullish sentiment, continued weighing on the safe-haven greenback.

Meanwhile, concerns about the near-term disruption caused by an extremely dangerous Category 4 hurricane in the Gulf of Mexico acted as a tailwind for crude oil prices. This, in turn, underpinned the commodity-linked loonie and exerted some pressure on the USD/CAD pair.

With the latest leg down, the major has now moved closer to the 1.2585-80 horizontal support. A convincing break below will set the stage for additional weakness and turn the USD/CAD pair vulnerable to accelerate the slide further towards challenging the key 1.2500 psychological mark.

Market participants now look forward to the US economic docket, featuring the release of Pending Home Sales. This, along with the US bond yields and the broader risk sentiment, might influence the USD. Traders will further take cues from oil price dynamics for some short-term opportunities.

Technical levels to watch