USD/CAD pauses on the way to 1.2800 as oil bulls eye OPEC+, risk sentiment dwindles

• USD/CAD grinds higher around three-week top, oil prices offer a firmer start to the week.
• BOC’s Macklem defends last week’s inaction, also cites less comfort with inflation.
• US Senate braces for a law to sanction Russia, OPEC+ likely to keep pre-planned output hike on the table.
• A light calendar at home/abroad highlights risk catalysts as the key drivers.

USD/CAD struggles to extend the three-day uptrend around the monthly high, recently taking rounds to 1.2775-80 amid Monday’s Asian session.

In doing so, the Loonie pair buyers find themselves challenged by the firmer oil prices, as well as comments from the Bank of Canada (BOC) Governor Tiff Macklem. Also testing the USD/CAD buyers is the absence of major catalysts and cautious mood in the market.

That said, WTI Crude Oil prices rise 0.40% to $87.00 by the press time. In doing so, the oil buyers stay hopeful amid news from Reuters suggesting that “US senators are very close to reaching a deal on legislation to sanction Russia over its actions on Ukraine, including some measures that may take effect before any invasion, two leading senators said on Sunday.”

Also favoring that oil prices are chatters that the global oil producers may not be able to match production hike targets even if they go ahead with planned output rise during this week’s OPEC+ meeting. That said, OPEC+ is a group of the Organization of the Petroleum Exporting Countries (OPEC) and its allies led by Russia.

At home, the last week’s BOC inaction got criticized and hence pushed BOC Governor Macklem to mention during the weekend comments, shared via Globe & Mail, “I’m not comfortable with where inflation is, but I don’t regret the actions we took.”

On the other hand, Federal Reserve’s (Fed) hawkish halt got largely praised and fuelled the US dollar until Friday’s US Q4 Employment Cost Index (ECI) eased to 1.0% from 1.2% market consensus and 1.3%. The wage-related data challenged the market’s previous concerns of 50 basis points (bps) of a rate hike by the Fed when it meets in March. It should be noted, however, that the Fed’s preferred gauge of inflation, namely Core PCE Price Index for December rose to 4.9%, versus 4.8% forecast and 4.7% prior, to keep the Fed hawks on the table.

Following the US data release, Federal Reserve Bank of Minneapolis President Neel Kashkari said that he expects Fed to raise rates at the March meeting. Though, the policymaker emphasized the importance of incoming data while also saying, “Have to see how data plays out.” On the same line was Raphael Bostic, president of the Fed’s Atlanta branch who reiterated his call for three Fed rate lifts in 2022, in an interview with the Financial Times (FT), with the first coming in March. “If the data say that things have evolved in a way that a 50 basis point move is required or [would] be appropriate, then I’m going to lean into that . . . If moving in successive meetings makes s the US 10-year Treasury yields dropped three bps to 1.778% whereas the Wall Street benchmarks had a positive day to end the week.

Against this backdrop, the US 10-year Treasury yields dropped three bps to 1.778% whereas the Wall Street benchmarks had a positive day to end the week. That said, the S&P 500 Futures print mild loss at the latest.

Considering a lack of major data/events on Monday, USD/CAD prices may rely on the risk catalysts while Friday’s jobs report for the US and Canada will be crucial.

Read: USD/CAD Weekly forecast: Fed promise trumps BOC pause

Technical analysis

Unless declining back below the 50-DMA level surrounding 1.2720, USD/CAD bulls can keep 1.2800 and the monthly high of 1.2813 on the radar.