USD/CAD locked in 1.2450 area despite higher crude prices

• CAD has failed to benefit from a rise in crude price, with USD/CAD locked in the 1.2450 region.
• BoC Governor Macklem was keen to impress to the public over the weekend that the BoC would control inflation.

In fitting with mostly subdued trading conditions being seen across G10 foreign exchange markets, it’s been quite an uninspired day for USD/CAD, with the pair going sideways for most of the session within a few pips of the 1.2450 level. It's notable that USD/CAD was unable to test, let alone break to the north of, its 200-day moving around 1.2480 average at the end of last week. As is often the case in FX markets, rejection at a key moving average (like the 200DMA) can be interpreted as a bearish technical signal. There is support in the 1.2430 area, but should the bears push the pair below that, the next notable support is the 21DMA just under 1.2400.

USD/CAD was pushed higher from previously under 1.2400 by a sharp drop in crude oil prices towards the end of last week but has been unable to track a subsequent recovery in crude oil prices by pushing lower. WTI prices are up almost $1.0 on Monday and trading back to the north of the $82.00 level again, more than $3.50 above last week’s lows. It seems that market participants are taking a breather following the chaotic week just gone.

In terms of relevant news for the pair; BoC Governor Tiff Macklem spoke over the weekend and reiterated his expectation that the spike in inflation is set to be transitory. However, he was keen to impress to the public that the BoC would keep inflation under control. At the last BoC meeting, the bank statement opened the door for rate hikes as soon as Q2 2022.

Meanwhile, a few Fed speakers have hit the wires on Monday. Fed Vice Chair Richard Clarida reiterated a previously held stance that the conditions for rate hikes might be met by the end of 2022, perhaps a more dovish stance than market participants had been expecting given recent inflation developments. Meanwhile, St Louis Fed President James Bullard, who will be a voter in 2022, was hawkish, saying he sees one of the “hottest” labour markets in the post-war period and could see the unemployment rate dropping under 4.0% in Q1 2022. Comments from other Fed members, including Patrick Harker, Michelle Bowman and Charles Evans, largely stuck to the script established at the last meeting. Meanwhile, Fed Governor Randall Quarles will resign at the end of the year.