USD/CAD clings to gains near 1-week tops post-BoC

• USD/CAD witnessed some aggressive short-covering move amid resurgent USD demand.
• The ongoing slump in oil prices undermined the loonie and contributed to the move up.
• The latest BoC monetary policy decision did little to provide any meaningful impetus.

The USD/CAD pair maintained its strong bid tone, albeit trimmed a part of its early strong gains to over one-week tops post-BoC announcement.

A combination of factors prompted some aggressive short-covering move and assisted the pair to stage a strong intraday rally of nearly 250 pips from the vicinity of one-month lows set in the previous session.

Persistent worries over the economic fallout from the coronavirus pandemic provided a strong boost to the US dollar’s status as the global reserve currency and turned out to be one of the key factors behind the move.

Wednesday’s awful US monthly retail sales further illustrated the extent of the economic damage caused by the COVID-19-induced lockdowns and provided an additional boost to the already stronger greenback.

This coupled with the ongoing fall in crude oil prices, back closer to 18-year lows, undermined demand for the commodity-linked currency – the loonie – and further contributed to the strong intraday rally.

The Canadian dollar failed to gain any respite from the Bank of Canada’s decision to leave interest rates unchanged at 0.25%. The BoC also announced Provincial Bond Purchase Program of up to $50 billion.

With Wednesday’s key data/event risks out of the way, the USD/oil price dynamics will continue to influence the pair amid a fresh wave of the global risk aversion trade – as depicted by a sea of red in the equity markets.

Technical levels to watch