USD/CAD dives below 1.2600 on surging oil prices

The US dollar resumed its downtrend against a firmer CAD, boosted by surging oil prices. The pair has extended the reversal from last week’s peak, at 1.2775, to hit intraday lows at 1.2555 area so far.

The loonie rallies with oil at multi-year highs

Oil prices have continued appreciating on Monday, with WTI futures trading at levels past $78 for the first time in the last seven years, as the OPEC+ confirmed the plan to stick to the agreed gradual output growth in spite of the international calls to increase production to support the post-pandemic recovery. This news has boosted demand for the CAD one of the world’s major crude producers.

Beyond that, the US dollar has continued pulling back from year-to-date highs on Monday. Investors remain cautious ahead of Friday’s US Non-Farm Payrolls release to better assess the Federal Reserve’s next move, as the market holds its breath for the official announcement of QE tapering.

In the macroeconomic domain, US factory orders have improved beyond expectations in August, 1.2% against the 0.7% forecasted by market experts. These figures, however, have failed to support the greenback with the market more focused on monetary policy expectations.

USD/CAD testing support at 1.2575/85

The pair is now pushing against the support area at 1.2575/85 (September 10 and 28 lows), if the breach of that level is confirmed, the pair will be aiming towards 1.2515 (September 7 low and  200-day SMA) and then 1.2490 (September 3 low).

On the upside, the US dollar should regain the 1.2600 level to ease selling pressure and advance towards 1.2710/25 (September 10 and 16 highs) ahead of 1.2775 (September 29 high).

Technical levels to watch