USD/CAD holds steady around 1.2620-25 region,

USD/CAD holds steady around 1.2620-25 region, lacks follow-through

A modest pullback in oil prices undermined the loonie and extended support to USD/CAD.

Fading hopes for an earlier Fed rate hike move weighed on the USD and capped the upside.

The USD/CAD pair bounced around 30 pips from the Asian session lows, albeit lacked any follow-through buying and was last seen trading near the 1.2620-25 area.

The pair managed to defend and attract some buying near the 1.2600 mark on Monday amid a modest pullback in crude oil prices, which tend to undermine the commodity-linked loonie. Despite the near-term disruption caused by an extremely dangerous Category 4 hurricane in the Gulf of Mexico, the black gold struggled to capitalize on the early uptick to more than three-week highs. Renewed worries about fuel demand – amid rising COVID-19 infections – seemed to be the only factor that weighed on the commodity and acted as a tailwind for the USD/CAD pair.

The supporting factor, to a larger extent, was offset by a softer tone surrounding the US dollar, which held bulls from placing aggressive bets and capped the upside for the USD/CAD pair. The Fed Chair Jerome Powell on Friday warned of the downside risks posed by the rapid spread of the delta variant and reassured that the US central bank was in no hurry to raise rates. This dashed hopes for an earlier move by the Fed and contributed to the ongoing slide in US Treasury bond yields. This, along with the risk-on mood, undermined the safe-haven USD.

This, in turn, warrants some caution for bullish traders and before positioning for any meaningful appreciating move. Market participants now look forward to the release of Pending Home Sales data from the US for some impetus later during the early North American session. The key focus, however, will remain on this week's other important macro data scheduled at the beginning of a new month, especially the closely-watched US monthly jobs report (NFP) on Friday. In the meantime, the US bond yields and the broader market risk sentiment might influence the USD. Apart from this, oil price dynamics might produce some opportunities around the USD/CAD pair.