USD/CAD advances towards 1.2600 on weak oil prices

• USD/CAD is inching towards the previous weeks’ high at 1.2620 as bears attack the oil market.
• Easing supply concerns and falling demand in China have brought a sell-off in the oil prices.
• An uncertain motion is expected from the DXY ahead of the US CPI.

The USD/CAD pair is exploding out of its consolidation, which placed in a narrow range of 1.2562-1.2578 in the early Asian session amid falling oil prices and a spike in the US dollar index (DXY) after a bearish open gap below 100.00.

Oil prices are carry-forwarding the previous week’s losses amid easing supply concerns and falling demand due to tight restrictions for Covid-19 in China. The International Energy Agency (IEA) will release 60 million barrels over the next six months out of their strategic stockpiles, which dictates a two million barrel extra release. Earlier, US President Joe Biden announced an additional one million barrels release of oil for six months out of its Strategic Petroleum Reserve (SPR). The easing supply concerns amid an additional release of oil by the countries may correct the oil prices. However, it will be interesting to look that to which extent the additional release of oil will offset the shortfall of Russian oil due to heavy sanctions by the Western counterparts.

On the demand side, the Chinese administration has kept the major populated city of China, Shanghai locked under its ‘zero tolerance’ category to contain the escalation of the Covid-19. China is the biggest importer of oil and slippage in demand by the giant will hammer the oil prices sharply.

Easing supply concerns and falling demand will underpin the greenback against the loonie going forward. Canada, being the largest exporter of oil to the US will find a dent in its inflows amid falling oil prices.

The DXY is likely to display wild moves ahead of the US inflation numbers, which will release on Tuesday. While the interest rate decision from the Bank of Canada (BOC) on Wednesday holds significant importance.