USD/CAD crosses 1.2700 to refresh seven-week top on softer oil, stronger yields

• USD/CAD picks up bids during three-day uptrend to poke October’s high.
• Oil fades bounce off the previous month’s low amid supply concerns.
• DXY tracks firmer Treasury yields to grind higher around 16-month peak.
• US PMIs, BOC’s Beaudry eyed for fresh impulse.

USD/CAD rises to the fresh high since October 01, up 0.11% intraday heading into Tuesday’s European session. The Loonie pair previously cheered firmer US Treasury yields while the latest weakness in Canada’s key export item, namely WTI crude oil, seems to propel the latest run-up.

US 10-year Treasury yields cling to a 1.627% level, a one-week high after reversing the previous week’s loss in a single day on Monday. The reason could be linked to US President Joe Biden’s decision to nominate Jerome Powell for another term as the Federal Reserve (Fed) Chair and Richard Clarida for Vice-Chairman. The US Dollar Index (DXY) tracks bond yields to rise to the fresh high since July 2020, up 0.06% on a day around 96.50 at the latest.

Also favoring the Treasury yields and the DXY are the recently escalating covid woes in the Eurozone and fears of the US-China tussles. Reuters quotes the outgoing German Chancellor Angela Merkel as saying, “We are in a highly dramatic situation. What is in place now is not sufficient,” while also mentioning the latest virus-led local lockdown in Austria.

On the other hand, the US warships again sail in the controversial Taiwan Strait despite Beijing’s warnings, which in turn trigger fears of another round of the Sino-American tussles. The pessimism grows especially after the world’s top two economies failed to offer any major positives during the last week’s virtual meeting to discuss the phase one deal and other key issues.

Elsewhere, WTI crude oil prices drop to $75.66, down 0.75% on a day, as supply crunch issues battle the US push to ease Strategic Petroleum Reserves (SPR).

Although the firmer yields and downbeat oil prices back the USD/CAD buyers, preliminary readings of the November month’s US PMIs and comments from the Bank of Canada (BOC) Deputy Governor Paul Beaudry will be important to watch for fresh impulse. Even if the hawkish hopes from the US data are likely underpinning the Fed rate hike woes and favoring the pair buyers, upbeat comments from the BOC’s Beaudry could probe the upside momentum.

Technical analysis

Highs marked during the late September join a three-month-old resistance line, near 1.2775-80, to challenge USD/CAD bulls.