USD/CAD sellers come in at 200DMA, push pair below 1.2450 again as crude oil takes off

• USD/CAD has reversed sharply back from earlier highs at its 200DMA and is back below 1.2450 again.
• A surge in crude oil prices has weighed on the pair in recent trade.

USD/CAD hit fresh four-week highs earlier in the session to the north of the 1.2480 level but has since pulled back below the 1.2450 level again amid ongoing strength in crude oil prices. Crude oil prices have been rallying in recent trade, which has been a tailwind for the energy-export-dependent loonie, with WTI prices now advancing in recent trade towards the $84.00 level from earlier session lows under $82.00.

Technical selling in USD/CAD is also playing an important role. The pair again tested its 200-day moving average at the 1.2480 area and the level was again rejected. But the selling pressure has eased with USD/CAD running into support in the form of an uptrend that has been in play since the end of October. Should prices break this uptrend to the downside and crude oil prices continue to advance, that would open the door to a move towards 1.2400, which also coincides with USD/CAD’s 50DMA.

So a move may have to wait for the latter half of the week, however, with FX market participants likely to remain reticent to place any big bets ahead of Wednesday’s all-important US Consumer Price Inflation report, which could cause choppiness for the US dollar. In terms of Canadian economic events, aside from a speech from BoC Governor Tiff Macklem on diversity at 2245GMT on Tuesday, there is nothing of note in the calendar for this week, which should ensure the pair trades as a function of USD and oil market dynamics.

Crude oil rallies

Crude oil prices have been rallying since the release of the latest US EIA monthly energy outlook report, which saw the agency increase its gas price forecasts when compared to the October report. The EIA now sees regular gas prices in the US averaging $3.0 per gallon in 2021 and $2.91 in 2022, up from $2.97 and $2.91 forecasts in the prior report.

The Biden administration, eager to do anything it can to lower energy prices, was said to be keen to scrutinise the report before making any final decisions on what measures it might take to reduce gas prices. A release of crude oil reserves from the Strategic Petroleum Reserve is on the table, but commodity analysts said they thought this would only temporarily weigh on prices, as it does nothing to fix the supply/demand imbalance that has lifted oil prices already by so much this year.