USD/CAD: Bears keep reins at two-week low around 1.2650 ahead of BOC

• USD/CAD stays pressured near 12-day low after declining the most since late August.
• Oil retreats from weekly top despite price-positive EIA inventories.
• Risk-on mood, expectations of hawkish halt from BOC favor bears.
• Virus updates, China news are also important, US inflation is the key.

USD/CAD remains on the back foot around 1.2650, following the heavy fall to refresh a two-week low. That said, the quote seesaws of late as Asian traders brace for Wednesday’s Bank of Canada (BOC) Interest Rate Decision.

The Loonie pair dropped the most since August 23 on Tuesday as risk-on mood joins upbeat prices of Canada’s main export WTI crude oil.

Market sentiment improved amid receding fears of the South African coronavirus variant, dubbed as Omicron, as well as hopes of more stimulus from China after Beijing pledged to safeguard the financial system. Adding to the risk-on mood could be mixed data from the US and an absence of Fedspeak ahead of next week Federal Reserve (Fed) monetary policy meeting.

WTI cheered upward revision to 2022 demand forecast by the US Energy Information Administration (EIA) and growing tension between Russia and Ukraine. As per Reuters, “The Biden administration is in ‘intensive consultations’ with the new German government over its response if Russia invades Ukraine and believes Germany would be ready to take significant action if Russia launches an attack, a senior U.S. State Department official said on Tuesday.”

Elsewhere, firmer prints of Canada’s International Merchandise Trade for October and Ivey Purchasing Managers Index for November add to the Canadian dollar’s (CAD) strength.

Amid these plays, the US 10-year Treasury yields remained firmer the previous day while Wall Street benchmarks also had a good day for bulls.

Moving on, USD/CAD traders will pay close attention to how the BOC hints at the possible rate hike after the bond purchases were ended in October. That said, the benchmark interest rate is likely to remain unchanged at 0.25%.

“The BoC will maintain that the outlook is evolving in line with the October MPR, and we expect it to repeat that inflation strength is largely transitory,” said TD Securities ahead of the event.

Technical analysis

A clear downside break of 20-DMA level of 1.2680 and an ascending support line from November 16, now resistance around 1.2790, directs USD/CAD bears toward an upward sloping trend line from late October, near 1.2570.