USD/CAD at session highs above 1.2450 with loonie at mercy of oil price fluctuations

• USD/CAD is at session highs above 1.2450, the pair trading as a function of oil, which has sold off recently.
• Focus for the pair returns to economic fundamentals on Friday with the release of US and Canadian jobs numbers.

USD/CAD is currently trading at highs of the day slightly to the north of the 1.2450 per barrel mark, sharply up from Asia Pacific session lows around the 1.2400 level, the pair trading as a function of oil prices more than anything else. On which note, crude oil prices have reversed sharply from what were at the time very impressive on the day gains (WTI was up more than $3.0 above $83.00) to hit fresh near four-week lows (WTI currently trades around $79.00), with this latest bout of selling pressure exerting a drag on the loonie and giving USD/CAD tailwinds.

The pair now trades at its highest levels since 13 October, and the bulls will be hoping that oil can continue with its downwards trajectory enough so that USD/CAD hits the next notable area of resistance around 1.2480, where the 200-day moving average resides. With regards to Canadian economic news/fundamentals, there hasn’t been anything of note on Thursday aside from a slightly bigger than expected trade surplus of C$ 1.86B in September, data which hardly ever moves USD/CAD anyway.

There have been a number of important updates for crude oil markets today, which can be neatly summarized as; 1) as expected, OPEC+ agrees to hike output by 400K barrels per day in December, despite international calls for a larger output hike, 2) the US isnt happy about OPEC+’s decision and is assessing options (they could release crude oil from their strategic reserves or even ban crude oil exports) and 3) traders are citing post-OPEC+ profit-taking, technical selling and recent negative China Covid-19 outbreak news as the major drivers of the sell-off.

Crude oil newsflow is likely to take a back seat on Friday (although traders should be on notice for any announcement from the US) and economics will return to the forefront with the release of US and Canadian October labour market reports, both out at 1330GMT. With both the Fed and BoC currently on course to start lifting interest rates in 2022, the timing of lift-off is highly sensitive to the persistence of inflation at high levels, but also the progress back to pre-pandemic levels of health of the labour market. USD/CAD traders will have to weigh up both jobs reports simultaneously, which can sometimes make for a confused reaction in USD/CAD.