USD/CAD drops towards 1.2700 as WTI crude oil pierces $70.00, DXY eases

• USD/CAD prints two-day downtrend, refreshes intraday low at the latest.
• Risk-on mood, softer USD underpin WTI crude oil’s run-up to refresh weekly top.
• Canada trade numbers, PMIs join second-tier US data to decorate calendar.
• Risk catalysts are more important ahead of Friday’s US CPI.

USD/CAD takes offers to refresh day’s low around 1.2730, down 0.25% intraday heading into Tuesday’s European session. The Loonie pair reversed from late September highs the previous day but a lack of major catalysts and risk-on mood dragged the quote afterward.

Market sentiment improves amid an absence of notable virus-led deaths and expectations of finding a cure to the COVID-19 strain from South Africa, dubbed as Omicron. Adding to the risk-on mood is the People’s Bank of China’s (PBOC) Reserve Ratio Requirement (RRR) actions and Japan’s readiness for record stimulus.

It’s worth noting that Mixed trade numbers from China, global rating agency Moody’s stable outlook for Chinese financial institutions and cautious optimism conveyed by the Reserve Bank of Australia (RBA) add to the firmer sentiment.

To portray the mood, the US Treasury yields and the stock futures keep the week-start rebound but the US Dollar Index (DXY) eases of late, down 0.05% intraday around 96.20.

More importantly, firmer risk appetite and softer DXY favored Canada’s main export item WTI crude oil to rise to a one-week high, up 1.0% on a day around $70.40 by the press time. The same exerts additional downside pressure on the USD/CAD prices.

Looking forward, US trade numbers, Nonfarm Productivity and Unit Labour Cost will join the Canadian International Merchandise Trade and Ivey Purchasing Managers Index for November to direct short-term USD/CAD moves. Also important will be weekly private inventory data for oil. It should be observed, however, that qualitative catalysts will be more important for fresh impulse ahead of Friday’s US Consumer Price Index (CPI).

Technical analysis

Sustained break of a short-term rising channel formation joins bearish MACD signals to direct USD/CAD sellers towards the 100-SMA level surrounding 1.2690. Alternatively, corrective pullback not only needs to restore the channel formation, by rising back beyond 1.2790 but should also overcome the weekly descending resistance line, close to 1.2850, for conviction.