USD/CAD tracks oil moves near 1.2650 after the biggest losses in a month

• USD/CAD bears take a breather around weekly low after a three-day downtrend.
• Oil needs an extra boost to refresh two-month top, marked amid risk-on mood.
• Firmer-than-expected Canadian data contrasts softer US PMIs to favor pair sellers.
• Risk catalysts, US housing data may offer fresh impulse.

USD/CAD holds lower ground near the two-week low surrounding 1.2650 during the early Friday morning in Asia. In doing so, the Loonie pair pauses after declining for three days at a stretch, not to forget after posting the heaviest daily fall since late August.

Alike other major currencies, USD/CAD also cheered the market’s risk-on mood, actually got a double boost due to the oil prices rally to refresh two-month high. The upbeat sentiment dragged the US Dollar Index (DXY) the most since August 27, adding more losses than the post-Fed upside to refresh the monthly top.

While tracing the roots, fading fears that China’s struggled real-estate firm Evergrande is a serious threat to the economy play a key role. The firm got restructuring plans and showed readiness to pay a scheduled coupon while also gained government support to lift the sentiment.

In addition to weighing on the DXY, the brighter mood also favored the US equities while the US 10-year Treasury yields jumped the most in 10 weeks, finally justifying the Fed’s hints of tapering and rate hikes.

Elsewhere, the preliminary readings of the US Markit PMIs for September softened than expected but Canadian Retail Sales for July improved versus -1.2% forecast to -0.6% MoM, versus +4.2% prior readouts.

Although a lighter calendar and a lack of major events may challenge the USD/CAD upside, the pair bears may keep the reins amid risk-on mood and firmer prices of Canada’s biggest export, WTI crude oil. To filter the moves, US New Home Sales for August, expected 0.7M versus 0.708M prior, may offer extra clues while risk catalysts like a global push towards vaccinations and headlines from China keep the driver’s seat.

Technical analysis

A clear downside break of a three-week-old support line, now resistance around 1.2700, directs USD/CAD bears towards 50-DMA, close to 1.2620.