USD/CAD seesaws near weekly top beyond 1.2800 as oil rebound battles risk-aversion

• USD/CAD struggles to extend four-day bounce off late-November lows, oil consolidates intraday losses.
• Sentiment sours as Omicron fears spread, market anxiety ahead of key central bank meetings adds to the risk-off mood.
• BOC’s Macklem cited concerns to bring inflation back to the 2.0% target.

USD/CAD grinds higher around the weekly top, recently easing from intraday high to 1.2820 ahead of Tuesday’s European session. In doing so, the Loonie pair probes the previous four-day run-up from the lowest levels since November 19.

While the bulls can rely on the risk-off mood, the latest swing in the prices of Canada’s key export item, WTI crude oil, could be linked to the USD/CAD pullback. That said, WTI crude oil bounces off an intraday low to regain $71.00 at the latest.

Behind the oil’s recovery moves could be comments from Saudi Arabian Oil Minister Abdulaziz bin Salman who warned of a 30% drop in oil output by the end of this decade due to falling capital investment. Also in the line were geopolitical fears concerning the US-Iran and the Sino-American diplomatic ties.

It's worth noting, however, that the market sentiment remains sour and underpins the US dollar’s safe-haven demand. While portraying the sentiment, the US 10-year Treasury yields seesaw around 1.42% whereas the S&P 500 Futures rise 0.15% at the latest. Furthermore, shares in Japan, Australia, New Zealand and China trade mixed by the press time.

Following the UK’s first Omicron-linked death and return of the mask mandate in California, Australia’s largest state, population-wise, New South Wales (NSW) reports the highest daily virus infections tally in more than two months. The virus woes pushed the finance ministers and central bank governors of the Group of Seven (G7) nations to pledge more efforts to combat the pandemic. Additionally, the Asian Development Bank (ADB) cut growth forecasts for developing Asia due to the same reason, per Reuters.

On Monday, Bank of Canada Governor Tiff Macklem said that the BoC was currently focused on bringing inflation back down to target without choking off Canada's economic recovery, in a post-Framework Review speech alongside Canadian Finance Minister Chrystia Freeland. The Canadian central bank left the five-year inflation rate unchanged at 2.0%.

Looking forward, the US Producer Price Index (PPI) for November, expected 9.2% YoY versus 8.6% prior, may offer intraday direction to the AUD/USD prices but major attention will be given to the risk catalysts.

Technical analysis

Although 10-DMA guards immediate USD/CAD declines around 1.2760, the monthly peak surrounding 1.2850 appears as a tough nut crack for the bulls.