USD / CAD breaks through 1.2700 to refresh seven-week high on softer oil and higher yields

  • USD / CAD increases offers during the three-day uptrend to hit October high.
  • Oil is fading and rebounding from the previous month’s low on supply concerns.
  • The DXY tracks the strengthening of Treasury yields to rise around the 16-month peak.
  • American PMI, Beaudry de BOC was looking for a new boost.

USD / CAD hit a new high since October 1, rising 0.11% during the day ahead of Tuesday’s European session. The loonie has previously applauded the strengthening of US Treasury yields, while the latest weakness in Canada’s main export, WTI crude oil, appears to propel the latest rise.

The 10-year US Treasury yields cling to a level of 1.627%, a one-week high after reversing the previous week’s loss in a single day on Monday. The reason could be linked to the decision of US President Joe Biden to appoint Jerome Powell for another term as President of the Federal Reserve (Fed) and Richard Clarida as vice-president. The US Dollar Index (DXY) tracks bond yields to hit a new high since July 2020, up 0.06% on a day to around 96.50 at the latest.

The recent escalation in eurozone covid issues and fears of US-China struggles are also boosting Treasury yields and the DXY. Reuters quotes outgoing German Chancellor Angela Merkel as saying: “We are in an extremely dire situation. What is in place now is not enough, ”while also mentioning the latest virus-led local lockdown in Austria.

On the flip side, US warships are once again sailing the controversial Taiwan Strait despite warnings from Beijing, which in turn raise fears of a new round of Sino-US struggles. Pessimism is growing especially after the world’s two largest economies failed to offer major positives during last week’s virtual meeting to discuss the phase one deal and other key issues.

Elsewhere, WTI crude oil prices fall to $ 75.66, down 0.75% on a day-to-day basis, as supply issues fight US pressure to relax Strategic Oil Reserves (SPRs).

While firmer yields and lower oil prices are supporting USD / CAD buyers, preliminary US PMI readings for November and comments from Bank of Canada Deputy Governor Paul Beaudry will be important to watch for a new impetus. Even though hawkish hopes from the US data likely underlie the woes of the Fed’s rate hike and favor pair buyers, BOC’s upbeat comments from Beaudry could probe the bullish momentum.

Technical analysis

Highs set in late September join a three month old resistance line near 1.2775-80 to challenge USD / CAD bulls.

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