USD/CAD consolidates above 1.2800 amid soft crude prices

• USD/CAD is holding above 1.2800 as risk appetite and crude oil markets remain on the defensive
• The loonie is the second-worst G10 FX performer on the day, also weighed by profit-taking post-strong jobs data last Friday.

USD/CAD has been choppy in recent trade, rising as high as the 1.2830s during the early part of Monday’s European morning session before briefly dropping back below 1.2800 again. Prices are now settling comfortably above the 1.2800 level and, at present, the pair trades with on the day gains of around 0.2% or 30 pips.

Profit-taking and lower crude prices weigh on loonie

The Canadian dollar is the second worst-performing currency in the G10 on the day so far on Monday. Partly, this is a reflection of profit-taking in wake of last Friday’s much stronger than expected November jobs report that saw the pair shoot beneath 1.2800 from above 1.2850. However, more broadly, the risk-off tone to trade today is weighing on the risk-sensitive loonie, especially weakness in crude oil prices.

Moreover, a decline in November Ivey PMI numbers is likely also not doing CAD too many favours. The headline, seasonally adjusted number unexpectedly fell to 52.7 in November against expectations for a rise to 54.7 from 54.5. Meanwhile, the non-seasonally adjusted reading fell to 52.4 from 55.9. Discouragingly, the Ivey survey’s subcomponent for employment fell to 48.1 from 56.1 in October. Obviously, the Canadian labour market held up well in November, as last Friday’s data indicated, but Monday’s Ivey PMI number might foreshadow weakness ahead into 2021, especially as economic restrictions increase to contain the Covid019 outbreak.

Support at the October 2018 low holding for now

USD/CAD is holding above support at the October 2018 low (at 1.3173) for now. Should this level go, it would open the door for a further move to the south towards the May 2018 lows between 1.2830-1.2840. The next major downside level beyond that is the April 2018 low at 1.2525.

Given the extent of CAD strength in recent days, some upwards retracement in USD/CAD is likely. One major area of resistance would be a downwards trendline linking the 16, 18 and 30 November lows and is likely to come into play in the 1.2840s.

USD/CAD one hour chart