USD/CAD eyes retest of 1.2800 level amid heavy crude oil prices

• USD/CAD has jumped and set highs of the day around 1.2790 in recent trade.
• A combination of USD strength and weakness in crude oil prices has given the pair a lift.

USD/CAD, having hit lows beneath 1.2720 prior to the start of Monday’s US session, has reversed course sharply to the upside in recent trade and is now trading close to 1.2780 and is eyeing a test of last Friday’s 1.2792 high and the psychological 1.2800 level. As things stand, the pair trades with marginal gains of around 10 pips or 0.1%.

One factor pushing USD/CAD higher in recent trade has been a pickup in USD, which has recovered from fresh annual lows amid a combination of profit-taking and a few negative Covid-19 stories (London was confirmed to be going back into tier 3 lockdown this week amid concerns over rising cases and a new, more virulent Covid-19 strain, while the NYC Mayor threatened a return to full lockdown if cases continue to rise). Compounding recent loonie downside is also a drop in crude oil prices.

Covid-19 concerns weigh on crude

WTI dropped from highs of the day around $45.50 to briefly below the $46.00 level in recent trade. The complex initially started the day on the front foot in line with broader risk appetite (which was boosted by vaccine hopes after the FDA approved the Pfizer vaccine and Brexit hopes after talks were extended). However, the aforementioned negative Covid-19 stories seems to have weighed, as well as news earlier during the European morning that major Eurozone economies Germany and the Netherlands will both tightening economic restrictions into January.

Elsewhere, a few localised supply disruptions were reported over the weekend, with an explosion hitting a ship outside the Saudi Arabian port of Jeddah and a landslide damaging a pipeline carrying crude oil to Iran’s second-largest refinery. This news has not given crude oil a lasting lift, perhaps due to reports from the Iranian oil ministry that it is planning to increase production by almost 70% (to 4.5M barrels per day) next year if the incoming Biden Administration lifts the country’s export ban.