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  • USD/CAD went briefly above 1.2600 on Wednesday but has since dropped back into the 1.2570s.
  • A strong recovery in crude prices and the overhang of hawkish BoC vibes all helped support the loonie.

USD/CAD is currently trading close to its 21-day moving average around the 1.2575 mark amid thin volumes with North American market participants having left and with Asia Pacific flow yet to fully arrive. The pair went as high as 1.2609 on Wednesday, but its trip above the 1.2600 level was short-lived and the pair slipped back to spend the US session under the big figure and at one point reaching lows below the 1.2550 mark. USD/CAD closed Wednesday FX trade 0.15% lower or down about 20 pips.

Driving the day

A strong recovery in crude oil prices (WTI ended Wednesday futures trade with gains of more than 5% to rally back to the high $60.00s), fuelled by supply-shortage concerns after a large tanker grounded itself in the Suez Canal (the tanker is still stuck and still blocking the transportation of Middle Eastern crude oil to Europe and North America), helped the loonie outperform the majority of its G10 counterparts on Wednesday.

The loonie has also been deriving support from hawkish BoC undertones over the past few days. To recap; the BoC’s announced on Tuesday that it would be ending (as planned) a number of its pandemic emergency liquidity facilities. Meanwhile, comments from BoC Deputy Governor Toni Gravelle, also on Tuesday, alluded to the bank moving towards a further tapering of its asset purchase programme.

Looking ahead, amid a lack of notable Canadian economic or political events for the rest of the week, focus is likely to remain on crude oil price action and USD dynamics. That means FX market participants will continue to watch the passage of the pandemic (particularly in Europe), US data and Thursday’s press conference with US President Joe Biden (his first since he took office), in which he is expected to talk infrastructure stimulus.