USD/CAD trims losses and approaches 1.2800

• US dollar's rebound from 1.2690 extends to levels near 1.2800.
• The lonie loses ground as oil prices drop.
• Longer-term, the USD/CAD is expected to remain neutral to negative – ScotiaBank.

The greenback has bounced up against its Canadian counterpart on Monday to pare losses after the 1.3% reversal seen late last week.

Canadian dollar drops as oil prices dive

The Canadian dollar has opened the week on a weak footing, weighed by a sharp decline in oil prices. The US benchmark WTI has dropped more than 8% on the day amid hopes of a peace agreement between Ukraine and Russia and investors' concerns about another COVID-19 lockdown in China with contagion levels rising fast.

On the other hand, market expectations that the US Federal Reserve will hike rates after its monetary policy meeting, due on Wednesday, have boosted US Treasury Bonds, ultimately increasing bullish pressure on the USD.

USD/CAD: Key support seen at 1.2695 ­– Scotiabank

FX analysts at Scotiabank, however, are skeptical about the US dollar’s recovery and remain attentive to the 1.2695 support area: “The broader, neutral range persists despite a fair degree of chop around that point but the USD continues to attract fairly solid selling interest on rallies and we continue to see a bit more downside than upside risk to this market in the months ahead (…) Key support is 1.2695 and we would look for the pair to fall more materially below this point.”

Technical levels to watch