USD / CAD falls below 1.2900, sets new multi-year lows

• USD / CAD has recently dipped below the 1.2900 level, setting new multi-year lows.
• The driver of the move has been USD weakness, and the loonie has largely ignored the OPEC + developments.

The USD / CAD It is suffering amid a broader tone of USD weakness that caused the dollar index (DXY) to fall to the 90.50 level at worst levels. The pair fell below the 1.2900 level without much fuss and is currently trading just above the day’s lows at 1.2866 around 1.2880. Currently, the USD / CAD is trading at a loss of around 40 pips or roughly 0.3%.

USD / CAD adjusts to dollar dynamics as loon ignores OPEC uncertainty +

The loonie was traded largely based on the dynamics of the U.S. dollar on Thursday and ignored ongoing OPEC + uncertainty and choppy crude oil market conditions. As a reference, the cartel has agreed to a small production increase in January of 500 thousand barrels per day. Crude oil markets seem happy with what they are seeing, with WTI climbing around half a percent on the day, not that the CAD has paid too much attention to anything other than rampant USD weakness anyway.

Moving on to the USD and the reasons for Thursday’s weakness; no specific catalyst appeared to be directly responsible for the USD’s initial slide on the day, although a recent run of solid US services PMI data for November seemed to only make matters worse;

Markit released its final services PMI reading for November, which was revised up to 58.4 from the preliminary estimate of 57.7, the highest reading in more than five years. Soon after, the Institute of Supply Management released its November services PMI estimate, which came in at a solid 55.9, modestly disappointing expectations of 56.0. Importantly, the employment sub-index remained above 50, which implies that employment in the service sector was expanding in the month that just ended despite the worsening of the virus situation.

Going into the data, some had argued that the strong numbers could be bullish for the USD, as they could discourage the Fed from offering more accommodations at the FOMC meeting later this month. However, what we ended up seeing was more of a risk in the reaction to the data, where stocks and risk-sensitive currencies rallied while the USD fell.

USD / CAD was testing the bottom of a medium-term descending triangle on Wednesday, but now it appears to have decisively broken south. To the upside, the 1.2900 level and the previous bottom of the former descending triangle just above it should offer strong resistance, while to the downside, there is now very little support ahead of the 1.2800 psychological level, with the low of October 2018. entering just below it at 1.2780.

2 hour chart