USD/CAD sinking as risk sentiment improves oil spikes in to $69bbls territories

• USD/CAD is pulling back in a strong daily move that leaves the outlook consolidative. 
• Risk appetite has returned to markets as the Covid-19 variant fears abate.
• Commodity currencies are bid and the CAD is supported on higher oil. 

USD/CAD is sliding as risk sentiment improves as the VIX falls into more average levels in the 27s, US stocks on Wall Street rally and commodities get a lift from good news on the Covid-19 omicron variant front. At the time of writing, USD/CAD is trading down around 0.60% in the late New York session as commodity currencies rally towards the finish line.

Oil is supporting the bid in CAD with West Texas Intermediate crude last seen up US$2.06 to US$69.13 per barrel spot. Talks to revive the 2015 nuclear deal with Iran are said to be floundering which is helping to support the oil price with fewer barrels expected to flood the market in the absence of Iranian crude oil. At the time of writing, USD/CAD is printing fresh lows of 1.2756 as the pair extended its losses from 1.2842, the high of the day. 

The coronavirus Omicron variant has now been detected in at least 24 countries around the world, according to the World Health Organization (WHO). However, there is a sentiment that it is not more severe than other variants as of now. 

Since the World Health Organization designated the new Covid omicron variant as being “of concern” less than two weeks ago, preliminary results are starting to emerge that are “a bit encouraging,” the White House’s chief medical advisor, Dr. Anthony Fauci, said Sunday.

He is referring to early figures from South Africa that suggest it may not be as bad as initially feared. While Omicron has spread to about one-third of US states as of Sunday, Dr. Anthony Fauci, the top US infectious disease official, told CNN that "thus far it does not look like there's a great degree of severity to it," though he cautioned that it's too early to be certain.

Iran nuclear deal are also not going well

Meanwhile, indirect talks to renew the 2015 Iran nuclear deal are also not going well, which is boosting the price of crude oil at the same time that fears over new covid lockdowns are abating. US Secretary of State Antony Blinken said Iran's government does not seem to be serious about renewing the accord, according to a Reuters report.

This is putting off the prospect of the return of the country's oil exports to the international market, Reuters explained. In other related news, Saudi Arabia raised its selling price to US and Asian customers on the weekend by US$0.60 per barrel.

Looking ahead, the Bank of Canada will be the focus for forex traders. Analysts at TD Securities are looking for a relatively quiet BoC meeting, with limited scope for a meaningful change in tone.

''The BoC will maintain that the outlook is evolving as expected and that inflation strength is largely transitory,'' the analysts argued. 'We do not expect any change to guidance, as the statement balances rising uncertainty over COVID & supply chain disruptions from BC floods against labour market strength.''