USD/CAD pushed to weekly highs at 1.3150 amid risk off flows

• Risk-off flows are weighing on the Canadian dollar, with USD/CAD up some 80 pips on the day.
• Formidable resistance in the form of the 21DMA and 50% fib from the October high to November low lies ahead.

USD/CAD has been pressing to the upside in recent trade amid an increasingly risk-off feel to FX markets; the pair currently trades with gains of around 80 pips, or 0.6% higher, with the rally stalling at the 1.3150 level.

CAD suffers as risk rolls over

Thursday has not so far been a great day for risk assets. The S&P 500 closed the US session with losses of roughly 1%, crude oil markets reversed earlier gains to now trade in the red while safe-haven bond markets have been in demand all day.

On the week, global equities and crude oil markets still trade with reasonable gains, boosted by vaccine optimism following Pfizer/BioNtech’s update earlier in the week. But many analysts had been arguing that this optimism might be excessive, what with the logistical challenges associated with distributing a vaccine that needs to be kept frozen, as well the rapidly deteriorating Covid-19 situation in the US and parts of Europe.

FX markets thus felt the weight of Thursday’s more downbeat shift sentiment; G10 FX underperformers include risk-sensitive NZD, CAD, AUD, NOK and GBP.

With focus predominantly on global factors, as well as the reversal lower in crude oil, the loonie largely ignored broadly dovish remarks from Bank of Canada Deputy Governor Carolyn Wilkins; “Canada is likely to exit pandemic with a lower profile for potential output leading to significantly diminished ability to generate goods, services and incomes on a sustainable basis” she said.

USD/CAD sellers come in ahead of 21DMA

USD/CAD’s rally has stalled just ahead of its 21-day moving average (DMA) at 1.3159, with the pair posting a high of the day at 1.3150. That means the pair has rallied an impressive 220 pips from lows set on Monday and has now surpassed the 50% retracement from last week’s election night high of 1.3300 to this week’s post-Pfizer vaccine update low of 1.2930.

To the upside, the 50% retracement from the October high at 1.3393 to this week’s low sits just above USD/CAD’s 21DMA. Further notable resistance comes at the psychological 1.3200 level in the form of the 50DMA. To the downside, the most notable level of support is the 3 November low/6 November high at just below 1.3100.