USD/CAD refreshes two-week low below 1.2800 on firmer oil prices, softer USD

• USD/CAD takes offers to refresh fortnight low, down for second consecutive day.
• Oil prices stay firmer around five-week top over geopolitical tensions, EIA inventories.
• USD tracks bond prices to the south amid lacklustre year-end sessions.
• Omicron headlines, energy updates and US data eyed for fresh impulse.

USD/CAD remains pressured around a fortnight low of 1.2775, down 0.15% intraday during Thursday’s Asian session. In doing so, the Loonie pair drops for the second consecutive day while taking clues from firmer oil prices and the downbeat US dollar.

WTI crude oil jumped to the highest since November 26 the previous day, up 0.05% around 76.35 by the press time, following the weekly inventory data from the US Energy and Information Administration (EIA). Adding to the bullish bias were comments from Saudi Arabia’s King Salman bin Abdulaziz who raised concerns over Iran’s lack of cooperation with the international community on its nuclear program and ballistic missile development.

Read: WTI steady above the 50-DMA at $76.30s

Other than the upbeat fundamentals of its own, oil prices and the USD/CAD bears also cheered broad US dollar weakness amid firmer Treasury yields and downbeat data at home. That said, the US Dollar Index (DXY) dropped the most in a week to poke the monthly low before closing around 95.88.

US 10-year Treasury yields jumped the most in three weeks to refresh monthly high around 1.557%, up 7.6 basis points (bps) by the end of Wednesday’s North American session. The benchmark bond coupon remains firmer around 1.55% by the press time.

While tracing the jump in the Treasury yields, increasing odds of the Fed’s early rate hike in 2022 and the weak seven-year bond auction could be cited as the key catalysts. A jump in the US inflation expectations, as portrayed by 10-Year Breakeven Inflation Rate numbers from the Federal Reserve Bank of St. Louis (FRED) back the Fed rate-hike woes. The inflation gauge refreshed the monthly top to 2.53% at the latest.

Talking about the data, the US Pending Home Sales for November dropped below the forecast of +0.5% to -2.2% MoM whereas Good Trade Balance hit a record deficit of $-97.8B versus $-83.2B prior.

It should be noted that the USD/CAD weakness also benefits from thin end-of-year liquidity conditions and policymakers’ rejection of the Omicron fears. “Almost 900,000 cases were detected on average each day around the world between Dec. 22 and 28, with myriad countries posting new all-time highs in the previous 24 hours, including the United States, Australia, many in Europe and Bolivia,” said Reuters.

Looking forward, the US Weekly Jobless Claims and Chicago Purchasing Managers’ Index for December, expected 205K and 62 versus 205K and 61.8 respectively, will decorate the calendar and should be observed for fresh clues. However, major attention will be given to the risk catalyst for clear direction.

Technical analysis

A clear downside break of the seven-week-old ascending support line, near 1.2775, becomes necessary for the USD/CAD bears to aim for November 23 high near 1.2745 and the monthly low near 1.2605. In absence of this, a corrective pullback towards 1.2850 can’t be ruled out.