USD/CAD still trading heavy just under the 1.2700 level

• USD/CAD continues to trade mostly to the south of the 1.2700 level amid rangebound USD and crude oil conditions.
• Scotiabank thinks Canada’s sluggish vaccine rollout has held the loonie back recently.

The 1.2700 level was a firm ceiling for the price action on Thursday. Since dropping back below the key psychological level on Tuesday, the pair has traded as low as 1.2660 (that was on Thursday, actually!) but has rarely traded more than a few pips north of the 1.2700 mark. Rangebound price action makes sense in the context of a broadly indecisive US dollar over the past two days, as well as crude oil markets that have not moved all that much.

Should the pair break back to the upside of the 1.2700 mark, bulls may target a test of resistance in the form of the 29 January low at 1.2740, which happens to also coincide with the 21-day moving average (which sits at 1.27416 right now). Conversely, if downside momentum returns, USD/CAD is going to have a good shot at retesting the 1.2600 level and perhaps even the multi-year lows at 1.2590 just below it.

Sluggish vaccine rollout

Analysts at Scotiabank think that Canada’s sluggish vaccine rollout is preventing the currency from deriving greater benefit from the rally in commodity markets; “broader uplift in commodity prices as global recovery hopes develop is providing CAD sentiment with a decent lift but the government’s vaccination plan/roll-out does appear to be something of an offsetting constraint on the CAD which is curbing its ability to take greater advantage of commodity gains” the bank says.

Still, Canada’s official advisory panel seems to think that aggressive vaccinations and maintaining the current stay-at-home order is going to help avoid a third wave of Covid-19 infections in the country. Time will tell how the third wave goes in Canada, and loonie traders will be watching.