USD/CAD drops below 1.2900, sets new multi-year lows

• USD/CAD has recently dropped below the 1.2900 level, setting fresh multi-year lows. 
• Driving the move has been USD weakness, with the loonie largely ignoring OPEC+ developments.  

USD/CAD is suffering amid a broader tone of USD weakness that saw the Dollar Index (DXY) drop as low as the 90.50 level at worst levels. The pair dropped below the 1.2900 level without too much fuss and is currently trading just above lows of the day at 1.2866 around 1.2880. At present then, USD/CAD is trading with losses of around 40 pips or roughly 0.3%.

USD/CAD conforms to dollar dynamics as loonie ignores OPEC+ uncertainty

The loonie has largely traded as a function of US dollar dynamics on Thursday and ignored ongoing OPEC+ uncertainty and choppy crude oil market conditions. For reference, the cartel has reportedly agreed to a small output hike in January of 500K barrels per day. Crude oil markets appear happy with what they are seeing, with WTI up about half a percent on the day, not that CAD has paid too much attention to anything other than rampant USD weakness anyway.

Turning to the USD and reasons for Thursday’s weakness; no specific catalysts appeared directly responsible for USD’s early decline on the day, though a recent batch of strong US services PMI data for November appeared to only worsen things;

Markit released its final services PMI reading for November, which was revised higher to 58.4 from the preliminary estimate of 57.7, the highest reading in over five years. Shortly after, the Institute of Supply Management released their estimate of services PMI for November, which came in at a solid 55.9, only very marginally below expectations for 56.0. Importantly, the employment subindex remained above the 50 mark, implying that service sector employment was in expansion in the month just gone despite the worsening virus situation.

Going into the data, some had argued that strong numbers might be USD bullish as it might discourage the Fed from providing further accommodation at the FOMC meeting later this month. However, this appears not to have been the case. Instead, the data triggered a risk on reaction, with gains being seen in US equity markets (and the S&P 500 hit fresh all-time highs) and safe haven USD taking a knock hurting demand for safe-haven currencies like the USD.

USD/CAD downside builds since downside break of descending triangle

USD/CAD was testing the bottom of a medium-term descending triangle on Wednesday but appears to have decisively broken to the south of it now. To the upside, the 1.2900 level and the previous bottom of the old descending triangle just above it ought to offer strong resistance, while to the downside, there is now very little by way of support ahead of psychological 1.2800 level, with the October 2018 low coming in just below it at 1.2780.

USD/CAD two hour chart