USD/CAD tumbles under 1.2650 on oil, optimism and ahead of BoC

• Canadian dollar accelerates to the upside versus the US dollar.
• Stocks sharply higher in Wall Street, oil gains more than 3%.
• Key event ahead: Bank of Canada meeting on Wednesday.

The combination of a rally in crude oil prices, positive market sentiment and a weaker US dollar are pushing USD/CAD sharply lower, the day before the Bank of Canada meeting. The pair is trading near 1.2630, at the lowest level since November 25.

The pair is falling for the second day in a row and fell under the 20-day moving average for the first time in a month. It is down more than a hundred pips so far on Tuesday, having the worst day in weeks.

A stronger CAD before the BoC

The loonie is among the top performers of the American session, supported by many factors, including crude oil prices. The WTI barrel is up by 4.55% at $72.65. At the same time, the Dow Jones is up by 1.50% and the Nasdaq 2.83%.

Despite falling against the loonie, the dollar is up against CHF, EUR, GBP and JPY supported by higher US yields, ahead of next week FOMC meeting. This week's key economic number will be on Friday with US inflation figures.

In Canada, on Wednesday, the Bank of Canada will announce its decision on monetary policy. No change in interest rates is expected. Analysts at TD Securities look for a relatively quiet meeting, with limited scope for a meaningful change in tone. “The BoC will maintain that the outlook is evolving as expected and that inflation strength is largely transitory (…) A quiet BoC meeting shifts CAD drivers to the world at large. In turn, covid uncertainty, heightened risk aversion, and a relatively poor local growth and mobility backdrop should keep USD/CAD hanging around 1.28 for a bit longer.”

Technical levels