USD/CAD retreats towards 1.2650 on upbeat oil prices after Fed, BOC meetings

• USD/CAD pares Fed-led gains around weekly high, down for the second day in a week.
• Fed, BOC matched market forecasts whereas Powell, Macklem sound cautiously optimistic.
• WTI crude oil prices stay firmer around the highest levels since October 2014.
• US Q4 GDP, Durable Goods Orders will be crucial for near-term direction.

USD/CAD consolidates the previous day’s gains around 1.2660, down 0.11% intraday amid Thursday’s Asian session.

The Loonie pair failed to praise the Bank of Canada’s (BOC) hawkish verdict on Wednesday as the US Federal Reserve (Fed) matched the market’s upbeat expectations. However, strong prices of Canada’s main export item WTI crude oil allow the quote to retreat from a multi-day high.

That said, the US Federal Reserve (Fed) kept benchmark interest rates and tapering targets intact during Wednesday’s Federal Open Market Committee (FOMC) meeting. However, the interesting part from the Monetary Policy Statement was, “The Committee expects it will soon be appropriate to raise the target range for the federal funds rate.”

Fed Chairman Jerome Powell also spoke in sync with the hawkish signals from the US central bank while saying, “There’s plenty of room to raise rates.” Though, his comments like, “The rate-hike path would depend on incoming data and noted that it is ‘impossible’ to predict,” seemed to have underpinned the USD/CAD pair’s latest pullback.

Read: Fed Quick Analysis: Three dovish moves boost stocks, why more could come, why the dollar could rise

Before that, the BOC held benchmark interest rate unchanged at 0.25% while saying, per Reuters, "The BoC repeated that it sees slack being absorbed sometime in the middle quarters of 2022." Following the monetary policy verdict, BOC Chairman Tiff Macklem said, “Interest rates will have to go up to counter inflation.”

Read: Breaking: Bank of Canada leaves policy settings unchanged in December as expected

It’s worth noting that the fears of supply outage due to the geopolitical risks emanating from Russia rejected the dovish EIA Crude Oil Stocks Change to keep WTI oil prices near the highest levels marked since October 2014, up 0.70% around $86.70 at the latest.

Amid these plays, equities and commodities remain on the back foot, except for oil, whereas the US 10-year Treasury yields rose the most in three weeks, up eight basis points (bps) to 1.87% by the end of Wednesday’s North American session.

Moving on, risk catalysts like Ukraine-Russia tussles and Sino-American tensions may play a notable role to direct short-term USD/CAD moves but major attention will be given to the first readings of the US Q4 GDP and Durable Goods Orders for December.

Read: US GDP Preview: Inflation component could steal the show, boost dollar, already buoyed by Russia

Technical analysis

USD/CAD keeps the five-week-old resistance breakout despite the recent pullback, which in turn keeps buyers hopeful to again challenge the 50-DMA level near 1.2710.

However, a downside break of the previous resistance around 1.2645 will need a clear break of the 100-DMA surrounding 1.2620 to convince USD/CAD bears.