USD/CAD eyes an explode of consolidation 1.2700-1.2720 range on the upside, WTI hovers near $100.00

• USD/CAD sees more upside to 1.2800 on slippage in oil prices.
• The testimony of Fed’s Powell has cemented the expectation of a 50 bps rate hike by the Fed.
• The higher inflation print in Canada is compelling one more jumbo rate hike by the BOC.

The USD/CAD pair is on the verge of giving a breakout of its consolidation formed in a narrow range of 1.2696-1.2727. The asset has remained in positive territory as a rebound in the risk-off impulse has underpinned the greenback against loonie. The risk-off impulse observed on Friday is expected to be followed on Monday, which will drive the asset higher to the psychological resistance of 1.2800 sooner.

West Texas Intermediate (WTI) prices have lost their strength on renewed fears of oil demand after the International Monetary Fund (IMF) slashed its global growth forecast to 3.6%, much lower than the previously estimated figure of 4.4%. Lower aggregate demand will result in less usage of oil and henceforth a slump in the oil demand for a longer horizon. Meanwhile, China is still recovering from the pandemic of the Covid-19, which has also dented the demand for oil. It is worth noting that Canada is the biggest exporter of oil to the US and slippage in oil prices is affecting the fiscal revenues of Canada.

Apart from that, the higher release of the Consumer Price Index (CPI) by Statistics Canada at 6.7% against the forecast of 6.1% last week has raised the odds of one more jumbo rate hike by the Bank of Canada. In the second week, the BOC raised its interest rate by 50 basis points (bps) to 1%.

Meanwhile, the US dollar index (DXY) is sustaining above 101.00 and a firmer establishment above the round level support will drive it towards the north. The DXY is performing stronger after Federal Reserve (Fed) chair Jerome Powell cemented the expectations of a 50 bps interest rate hike. Going forward, investors will focus on the speech from BOC Governor Tiff Macklem, which is due on Monday.