USD/CAD rejects resistance at 1.2800, reverts back to within intra-day ranges as oil prices unwind earlier gains

• USD/CAD tried to test last week’s highs at 1.2800 earlier in the session, but have since fallen back towards 1.2750.
• Oil prices fell back from their earlier highs, making it difficult for CAD to recoup recently lost ground versus USD.

USD/CAD flirted with last Friday’s multi-week highs close to 1.2800 in earlier trade, but the pair has since backed off and is now trading around the 1.2760 mark with very marginal on the day losses of around 0.1%. That means the pair is close to the centre of its recent 1.2730-1.2800 intraday ranges, though is still some way above last week’s lows under 1.2650. To recap, the pair rallied more than 1.0% last week as crude oil prices tanked amid fears about the impact that the global spread of the Omicron Covid-19 variant would have on demand. Indeed, those gains all came last Friday in tandem with WTI prices tanking nearly $10 to under $70.00.

Oil prices attempted a rebound on Monday, but as the US session drew on, oil prices gradually found themselves coming under more selling pressure again. WTI nearly went as high as $73.00 prior to the US open but has slipped back under the $70.00 level and its 200DMA again ahead of the close. Whilst WTI is still set to finish the session about 2.0% or just under $1.50 higher, the erosion of earlier gains has made it difficult for the loonie to regain some recently lost ground versus the US dollar.

There was some focus on Canadian data earlier in the session; the Canadian Current Account in Q3 2021, released at 1330GMT, was significantly weaker than expected at C$ 1.4B versus expectations for C$ 4.6B, weighing on the loonie at the time. Industrial Product and Raw Material Price data was also released at 1330GMT. As usual, it didn’t move markets, but the data is quite alarming. Raw Material Price inflation rose to 38.4% in October following a 4.8% MoM rise on the month, while Industrial Production Price inflation came in at 16.7%, after a 1.3% rise in October. While both YoY rates of inflation have been higher at other points during the year, both are historically elevated.

Looking ahead to the rest of the week, the focus will mainly be on Fedspeak and US data (November ISM surveys and the official November jobs report), though the November Canadian jobs report on Friday will also be worth watching. Perhaps more important than the calendar scheduled events, however, will be developments on the Omicron variant front. Market participants eagerly await more information on the strain’s 1) transmissibility, 2) severity of sickness, 3) ability to avoid the existing vaccines and treatments. Only once this information is clearer can market participants may well informed adjustments (if any are required) to their economic/central bank policy forecasts. As a result, markets are likely to be very headline-driven.