USD/CAD advances to 18-month highs above 1.3460 as WTI loses more than 4% on the day

  • Crude oil sell-off continues to weigh on the loonie.
  • US Dollar Index stages a modest recovery, sits above 97.
  • Coming up on Wednesday: Canadian inflation data and the Fed's policy announcements.

Despite a broadly weaker greenback, the USD/CAD pair closed the first day of the week higher and extended its rally on Tuesday as the crude-oil selloff weighed on the commodity-sensitive loonie. The pair, which touched its highest level since June 2017 at 1.3470 in the last hour, was last seen trading at 1.3464, where it was up 0.43% on a daily basis.

Ahead of the weekly API stock report, the barrel of West Texas Intermediate suffered heavy losses on Tuesday amid concerns over the dismal demand outlook and OPEC's ineffective attempt to balance the market. The WTI slumped below the $47 mark for the first time in 15 months earlier in the session and staged a small recovery. As of writing, the WTI was trading at $47.25, losing 3.8% on a daily basis.

On the other hand, following a drop to a weekly low of 96.70, the US Dollar Index erased the majority of its daily losses to provide an additional boost to the pair. As investors are gearing up for tomorrow's critical Fed decisions, the DXY is down 0.1% on the day at 97.05. 

Today's data from the U.S. showed that housing starts and building permits recorded sharp increases in November while the Canadian data revealed that manufacturing sales contracted by 0.1% in October to fall short of the market expectation of 0.4%.

Technical levels to consider

The pair could face the initial resistance at 1.3500 (psychological level) ahead of 1.3530 (Jun. 9, 2017, high) and 1.3610 (May 19, 2017, high). On the downside, supports are located at 1.3400 (daily low), 1.3350 (Dec. 14 low) and 1.3290 (Dec. 10 low).

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