USD/CAD pares post BOC losses below 1.2400 on downbeat oil prices ahead of US GDP

• USD/CAD consolidates the biggest daily losses in a week, grinds higher of late.
• Oil prices bear the burden of growth fears, DXY fails to justify firmer Treasury yields.
• BOC surprised markets with end of bond purchases, US GDP eyed.

USD/CAD pokes intraday high around 1.2375, up 0.18% on a day while licking the Bank of Canada (BOC)-led wounds ahead of Thursday’s European session. Also adding to the loonie pair’s recent strength could be the weaker prices of Canada’s biggest export item, WTI crude oil.

WTI crude oil drops for the second consecutive day to refresh the fortnight low, down 1.06% around $80.70 by the press time. The black gold remains pressured for the second consecutive day global traders fear monetary policy tightening in the West while the pandemic-linked losses aren’t set in all.

Also underpinning the USD/CAD upside could be the hopes of the US stimulus and Fed tapering tantrums. The White House policymakers push for faster progress on the stimulus and budget talks favor optimists while the escalating US-China tussles over telecom, Taiwan and Afghanistan weigh on the sentiment. Also challenging the mood is the cautious mood ahead of the preliminary reading for the Q3 US GDP which is expected to confirm that the world’s largest economy did suffer from Delta variant breakout and hence it isn’t a good time for the Fed rate hikes.

It’s worth noting that the BOC left the benchmark policy rate unchanged at 0.25%, matching the wide market forecast. However, the Canadian central bank’s end to the weekly purchases of the government bonds surprised markets. Also fueling the Canadian dollar (CAD) were the comments from Governor Tiff Macklem who said, “We will consider raising rates sooner than we had previously thought.

Amid these plays, US Treasury yields consolidate the heaviest daily fall since mid-August, recently picking up bids to 1.55%, up 2.6 basis points (bps), whereas the stock futures print mild gains at the latest.

Although the mixed concerns highlight oil moves as the key catalyst for the immediate USD/CAD performance, today’s US Q3 GDP will be crucial to watch.

Read: US Third Quarter GDP Preview: A most uncertain estimate

Technical analysis

The 100-SMA on the four-hour (4H) chart and the upper line of a seven-week-old falling wedge, around 1.2430, becomes the key short-term hurdle for the USD/CAD traders to watch during further recovery moves.