The USD/CAD pair traded with a mild positive bias through the early European session, albeit lacked any follow-through and remained below the key 1.2500 psychological mark. The pair staged a modest bounce following an early dip to the lowest level since February 2018, around the 1.2455 region and was supported by the emergence of some fresh US dollar buying. Investors have been betting on a relatively faster US economic recovery from the pandemic, which was seen as a key factor that benefitted the USD.
The optimistic US economic outlook was further bolstered by the passage of a massive $1.9 trillion stimulus package, which fueled speculations for an uptick in US inflation. This, in turn, raised doubts that the Fed would retain ultra-low interest rates for a longer period and pushed the US bond yields to over one-year tops.