USD/CAD drops to 2-week lows below 1.27 on US Senate tax plan disappointment

• Senate tax bill to delay corporate rate cut to 2019.
• DXY drops to daily lows around 94.40 region on news.
• Crude oil recovery provides extra support to the loonie.

The USD/CAD pair came under pressure in the last hour and broke below the 1.27 handle to refresh its lowest level since October 25 at 1.2680. As of writing, the pair was trading a couple of pips above that level, losing 0.35% on the day.

Greenback faces broad-based sell-off on political developments

The US Dollar Index, which staged a modest recovery on rising US T-bond yields during the early NA session, fell sharply after Republican Senate Finance Committee member Bill Cassidy announced that the U.S. Senate Republicans' version of a tax cut bill would delay corporate rate cuts by one year to take effect in 2019, and would not include a repeal of Obamacare's individual mandate. At the moment, the DXY is at 94.39, down 0.4% on the day.

• Senate tax bill to delay corporate tax cut until 2019, dollar to deflate?

On the other hand, the commodity-sensitive loonie is receiving an additional boost from crude oil prices on Thursday. Following two days of losses, the barrel of West Texas Intermediate reversed course on Thursday amid concerns over supply disruptions and was last seen trading at $57.30, adding nearly 1% on the day.

With no macroeconomic data left in the remainder of the session, fresh headlines surrounding the tax bill is likely to drive the pair's price action.

Technical outlook

With this recent retreat, the RSI indicator on the daily graph fell below the 50 mark, suggesting that sellers are taking control of the price action. 1.2620 (Oct. 24 low) could be seen as the first technical support ahead of 1.2525 (100-DMA) and 1.2460 (Oct. 18 low). On the upside, resistances align at 1.2730 (20-DMA), 1.2800 (psychological level) and 1.2915 (Oct. 27 high).