USD/CAD eyes test of 1.2800 as oil prices hand back earlier session gains

• USD/CAD is picking up amid a pullback in crude oil prices from earlier lows.
• The pair is now just under 1.2800, having previously been as low as the 1.2710s.
• USD/CAD seems to be moving higher within a bullish trend channel.

USD/CAD has shifted higher over the last few hours and now trades near 1.2800, up from prior session lows in the 1.2710s, in tandem with a pullback in crude oil prices from earlier session peaks. On the day, the pair is now trading 0.1% higher, having previously been as much as 0.5% lower though, for the most part, has stuck to this week’s intraday ranges.

USD/CAD’s price action on Wednesday suggests that, for the time being, the pair is likely to continue moving higher within the confines of a short-term bullish trendline. Meanwhile, the fact that the 21-day moving average recently crossed to the north of both the 50 and 200DMAs (with the 50 above the 200) suggests the bullish trend has some decent momentum. Should this technical trend persist, a test of resistance at 1.2900 seems likely.

As global oil markets and risk appetite remains on the ropes amid ongoing fears about the impact of the new, highly transmissible Omicron variant, the above technical trend makes sense. This is especially the case if a bad Omicron outbreak delay’s the Bank of Canada’s monetary policy normalisation plans.

Canadian data, meanwhile, was ignored on Wednesday. For reference, Markit Manufacturing PMI in November remained strong at 57.2 (slightly down from 57.7 in October) and Building Permits growth in October was stronger than expected at 1.3% MoM (versus forecasts for a 1.0% MoM drop). US data in the form of a strong November ISM Manufacturing PMI survey and a solid November ADP national employment change estimate got more attention but broadly failed to support the dollar, with the DXY broadly flat.

Fed Chair Jerome Powell’s hawkish tone this week on the economy means that strong ISM services PMI numbers on Friday and a good jobs report on Friday likely won’t have too much of an impact on the dollar’s broader fortunes. Of course, the November US jobs report will still be closely scrutinised, as will the November Canadian jobs report released at the same time.