USD/CAD stays calm above mid-1.21s as crude oil struggles to extend gains

The USD/CAD pair gathered momentum in the first half of the NA session and reached a fresh 5-day high at 1.2180 before going into a consolidation phase. As of writing, the pair was trading sideways in a narrow band around 1.2170, up 0.45% on the day.

Crude oil prices are having a difficult time making a meaningful recovery on Tuesday, not allowing the commodity-sensitive loonie to gain strength against the buck. At the moment, the barrel of West Texas Intermediate was holding on to small gains a tad above the $48 mark ahead of the API's weekly crude oil stock report, which showed a buildup of 2.791 million barrels in the previous week. Hurricanes are likely to cause another increase in the US crude oil inventories.

On the other hand, with a nearly empty economic calendar on Tuesday, the US Dollar Index failed to make a decisive break through the 92 mark, limiting the pair's upside. In the late NA session, the index is virtually flat on the day at the 91.90 handle. A stronger-than-expected growth in the PPI numbers from the U.S. tomorrow could help the index stretch further. There are no data due to be released from Canada on Wednesday.

Technical outlook

The first technical hurdle for the pair aligns at 1.2385 (20-DMA) followed by 1.2490 (Sep. 1 high) and 1.2535 (Aug. 28 low). On the downside, supports could be seen at 1.2120 (Jun. 18, 2015, low), 1.2080 (Apr. 27, 2015, low) and 1.2000 (psychological level).

• USD/CAD biased towards a neutral/bearish stance – Scotiabank