USD/CAD back at 1.2400 after brief test of 21DMA

• USD/CAD is back at the 1.2400 level having briefly tested its 21DMA above 1.2420.
• This week, the pair is focused on the OPEC+ and Fed meetings, as well as US and Canadian jobs data.

USD/CAD is currently flirting with the 1.2400 level, up about 0.2% on the day, amid a lack of notable fundamental catalysts in recent hours. The pair at one point changed hands as high as 1.2420, coming within a whisker of its 21-day moving average at 1.2422, but has come off these highs. Canadian Building Permits data from September was released earlier in the session and was a little better than expected, up 4.3% MoM versus forecasts of a 3.1% rise, but the data has offered little support for the loonie on Tuesday, with USD/CAD trading more as a function of broader currency market dynamics. Despite buoyancy in global equities, FX markets reflect a somewhat more risk-averse tone, with risks sensitive currencies like AUD, NZD and NOK performing the worst in the G10, while the safe-haven JPY and USD do the best.

Data and central banks

The main focus for FX markets this week is on the outcome of Wednesday’s FOMC and Thursday’s BoE policy meetings, as well as on US data in the form of October ISM Services PMI on Wednesday and the October jobs report on Friday. Canadian jobs data is also released on Friday alongside the US report. A more hawkish than expected outturn from the Fed and BoE might support the USD and GBP, but it may also get the juices flowing for similar hawkish policy turns from the likes of the BoC, who most analysts suspect will stay a few steps ahead of the Fed in terms of monetary policy normalisation, which could in turn limit any CAD downside. Indeed, if this week’s Canadian labour market report supports the case for early BoC rate hikes, the stage is set for the loonie to be one of the better G10 performers.

OPEC+ meet this week

CAD traders must also, as ever, keep one eye firmly fixed on oil market dynamics; OPEC+ meet on Thursday and a Bloomberg survey out earlier on Tuesday showed that all surveyed analysts expect the cartel to stick to their existing pact which stipulates that oil production will be lifted by 400K barrels per day per month until output cuts have been fully unwound in mid-2022. OPEC+’s cautious stance in bringing supply back online slowly has faced strong international blowback and oil strategists expect that over the coming months, global oil consumption is set to outstrip oil production by a significant margin (perhaps as much as 2M barrels per day), thus contributing to tight market conditions and prices remaining well supported. WTI is on Tuesday trading in the $83.00s per barrel, within ranges of recent weeks. Should prices resume their recent march higher, this could be the impetus that loonie traders had been waiting for to send USD/CAD back towards recent lows around 1.2300, or even back towards a test of annual lows around 1.2000.