USD/CAD extends daily rally beyond 1.2900 on USD strength, oil selloff

• USD/CAD is up more than 1% on Monday.
• Crude oil prices are falling sharply amid renewed COVID-19 fears.
• US Dollar Index recovers toward 91.00 on risk aversion.

The USD/CAD pair staged a rebound on Friday and closed the week virtually unchanged. On Monday, slumping crude oil prices and a renewed USD strength provided a strong boost to the pair, which was last seen gaining 1.15% on the day at 1.2932.

Market mood turns sour

Crude oil prices closed each day of the previous week in the positive territory and the barrel of West Texas Intermediate (WTI) rose by more than 5% on a weekly basis. However, with the mutated coronavirus in the UK forcing travel restrictions and causing markets to turn risk-averse, the WTI fell sharply and hurt the commodity-related CAD on Monday. At the moment, the WTI is losing 5.3% at $46.40.

On the other hand, the safe-haven greenback is outperforming its rivals at the start of the week and allowing USD/CAD to extend its rally. The US Dollar Index (DXY) is currently up 0.83% at 90.88, reflecting the broad-based USD strength.

Later in the day, the Federal Reserve Bank of Chicago will publish its National Activity Index. In the meantime, New Housing Prices Index will be featured in the Canadian economic docket.

Nevertheless, market participants are unlikely to pay any attention to these data as major equity indexes in the US point to a dismal opening. As of writing, the S&P 500 Futures were losing 2.6% on the day and the DXY could stretch higher with a heavy selloff in stock markets in the second half of the day.

Technical levels to watch for