USD/CAD: Wednesday’s Doji, firmer USD direct bulls to 1.2700 despite higher oil prices

• USD/CAD extends the previous day’s rebound from three-week high.
• Oil prices benefit from geopolitical fears, mixed concerns over Omicron.
• BOC left monetary policy unchanged, as expected, but teased rate hike in early 2022.
• BOC’s Gravelle, US Jobless Claims eyed, risk catalysts are more important.

USD/CAD keeps the post-BOC recovery around 1.2670, up 0.13% intraday, while heading into Thursday’s European session.

The loonie pair dropped to the lowest levels since November 19 the previous day before bouncing off 1.2607, which in turn portrays bullish Doji and keeps the buyers hopeful. Also favoring the upside momentum is the latest US dollar strength amid mixed concerns over the South African South Africa-linked COVID-19 strain, dubbed as Omicron, as well as the Fed rate hike.

The Bank of Canada (BOC) matched wide market forecasts while leaving the benchmark interest rate unchanged at 0.25%. However, BOC reiterated its bullish bias but couldn’t tame the USD/CAD upside. “The BoC repeated that it sees slack being absorbed sometime in the middle quarters of 2022,” per Reuters.

Following that, doubts over the transmissibility of Omicron and fresh lockdowns in Germany, France and the UK challenged the market sentiment and underpinned the US dollar’s safe-haven demand. Also adding to the risk-off mood were US-China tussles, talks over Iran diplomacy and increased calls of the Fed’s sooner rate hike.

Additionally, a four-day rebound of the US inflation expectations ahead of Friday’s key US Consumer Price Index (CPI) joins Reuters’ poll favoring the sooner Fed rate hike, to propel the US Treasury yields and the US dollar.

Amid these plays, US 10-year Treasury yields stay firmer around the week’s high near 1.51% while stock futures print mild losses at the latest. It should be noted that the WTI Crude Oil prices rise for the fourth consecutive day amid geopolitical tensions surrounding US-China, Washington-Russia and America-Iran.

Although the fresh risk-aversion wave favors USD/CAD bulls, the pair traders should wait for comments from BOC Deputy Governor Toni Gravelle and US Jobless Claims for clear direction. Above all, Friday’s US inflation data are crucial to watch.

Technical analysis

A bullish Doji around multi-day low keeps USD/CAD buyers hopeful to conquer the 1.2700 threshold. However, further advances will be challenged around 1.2850. On the contrary, the 200-DMA and ascending trend line from late October, near 1.2580-75, offers a tough nut to crack for the pair bears.