USD/CAD extends its five-day rally, marching firmly towards 1.2850

• The USD/CAD rises 0.08%, as the Federal Reserve’s last meeting looms.
• Falling crude oil prices weighed on the commodity-linked Canadian dollar amid a dull FX market session.
• USD/CAD Technical Outlook: Has an upward bias, and a break above 1.2850 would expose the YTD high around 1.2940s.

At the time of writing, the USD/CAD advances for the fifth consecutive day, trading at 1.2831 during the New York session, as the Federal Reserve begins its last monetary policy meeting of 2021. Financial markets mood is risk-off or perhaps cautious as investors await if the Fed would taper faster than foreseen, while money market futures discount three rate hikes of the US central bank by the end of 2022.

In the meantime, European equities drop, except for the FTSE 100, while US stocks indices fall between 0.03% and 0.48% across the pond at the open of Wall Street.

Falling crude oil prices, and rising US PPI weighs on the CAD

In the commodities complex, Western Texas Intermediate (WTI), which is linked to the Loonie, drops 1.11%, down at $70.50, weighs on the Canadian dollar, after the OPEC+ stuck to its 2022 outlook increase of 1.11 Million barrels amid a fourth-wave of COVID-19 infections worldwide.

In the macroeconomic docket, the US Department of Labor reported that the Producer Price Index (PPI) for November rose by almost 10% annually, more than the 9.2% estimated. The so-called Core PPI, excluding volatile items like food and energy, increase by 7.7&, higher than the 7.2% foreseen by analysts. 

That reading would put the Federal Reserve under pressure, as it is the highest figure since 2010. According to the report, some businesses have passed those added costs to customers through higher prices, and this report suggests additional increases in the coming months.

That said, the USD/CAD might reverse all its losses from December of 2020, when it began its drop from 1.2956, down to the YTD low at 1.2006, as the Fed’s eyes the end of the easy money cycle, after US Consumer Prices rose the most since 1982, as reported on Friday’s of last week.

USD/CAD Price Forecast: Technical outlook

The USD/CAD daily chart depicts that the USD/CAD has recovered most of its losses, and it has an upward bias, confirmed by the daily moving averages (DMAs) residing well below the spot price. At press time, the pair approaches strong resistance around 1.2850, which in the event of being broken could send the USD/CAD rallying towards the year-to-date high at 1.2948, followed by a test of December 21, 2020, cycle high at 1.2956.

On the other hand, failure at 1.2850 would form a double-top pattern that could send the USD/CAD tumbling towards the December 8 low at 1.2605, followed by the 100-DMA at 1.2583, and then the 50-DMA at 1.2546.