USD/CAD retreats towards 1.2700 as oil pieces $72.00, Fed in focus

• USD/CAD struggles to extend three-day rebound from monthly low.
• WTI crude oil stretches Friday’s run-up as softer yields underpin commodities.
• US inflation matched market consensus for November but Fed fears prevail.
• Monday’s light calendar puts risk catalysts in the driver’s seat.

USD/CAD fades bounce off monthly low, marked on last Wednesday, while easing to 1.2725 during early Monday morning in Asia.

The Loonie pair snapped a seven-week uptrend the last week as prices of Canada’s key export item, WTI Crude Oil, registered the best week since late August. The oil benchmark takes rounds to $72.00, up 0.26% intraday by the press.

Even so, the USD/CAD pair marked positive daily closing on Friday amid the broad US dollar weakness after the US Consumer Price Index (CPI) matched market expectations. Also positive for the quote were the stable inflation expectations revealed via the University of Michigan Consumer Sentiment Index survey for December.

It’s worth noting that the Bank of Canada’s (BOC) cautious optimism and fears of the South African covid variant, dubbed as Omicron, joined escalating US-China tension to challenge the USD/CAD bears. Furthermore, chatters surrounding the virus-linked reduction in the energy demand and the OPEC+ output hike also kept the pair buyers hopeful.

Above all, the fears that the Fed will stay on course to the rate hike, with anticipated faster tapering, signals further upside of the USD/CAD prices unless any wild-card move.

Against this backdrop, the US 10-year Treasury yields remain sluggish around 1.48% while the S&P 500 Futures await fresh direction after the Wall Street benchmark refreshed all-time high the previous day.

Looking forward, a lack of major data/events scheduled for today will join the market’s anxiety ahead of the Fed decision to test the USD/CAD traders. However, virus updates and geopolitical headlines can offer intermediate moves to the pair.

Technical analysis

Although the recent swing low around 1.2605 restricts the short-term downside of the USD/CAD prices, 10-DMA guards immediate recovery moves near 1.2745.