USD/CAD eases towards 1.2800 as Canada elections, sour sentiment join weak oil

USD/CAD keeps pullback from monthly top, range-bound of late.
Canadian election polls flash mixed signals, oil stays pressured after three-day downtrend.
China’s Evergrande, Fed taper tantrums and virus woes challenge sellers.

USD/CAD snaps three-day uptrend, easing from the monthly peak to 1.2813 during the initial Asian session on Tuesday.

The loonie pair jumped to the highest in a month the previous day as broad risk-off mood underpinned the US dollar’s safe-haven demand. On the same line were concerns relating t to Canada’s Federal Elections and downbeat prices of Ontario’s main export, namely oil.

US Dollar Index (DXY) rose to the highest since August 23 as fears over China’s Evergrande and the coronavirus-led challenges to the economic recovery backed the rush to risk-safety. Also, doubts over the US stimulus and Fed tapering concerns add to the sour sentiment and favored the greenback.

China’s biggest real estate player Evergrande is up for default, with estimated dues of above $300 billion. The ripple effect was severe for stocks and the US Treasury yields also consolidated some of the last week’s gains in reaction, even as an off in China and Japan challenged bond traders.

Elsewhere, the US NAHB Housing Market Index ended four months of declines in September, rising 1 point to 76. The same join the mixed bag of the US statistics to amplify uncertainties over the Federal Reserve’s (Fed) next move as policymakers were hawkish during their latest approach.

It should be noted that chatters that a senior US Senator Joe Manchin pushed back President Joe Biden’s $3.0 trillion stimulus discussions back to 2022 joined doubts over the debt limit extension to exert additional downside pressure on the risk appetite. US Treasury Secretary Janet Yellen urged for another extension to the limits.

At home, PM Justin Trudeau struggles for the dreamed majority, per the latest polls, as Canadian citizens vote during the Federal Elections. “Canadian Prime Minister Justin Trudeau may cling to power in Monday’s election, but he is likely to lose his bid for a parliamentary majority after a tough campaign that dashed his ruling Liberals’ hopes for a convincing win,” said Reuters.

Moving on, early results of the Canadian election and risk catalysts are likely to remain as the key while second-tier housing data from the US may also entertain the USD/CAD traders.

Technical analysis

Sustained trading above a two-month-old horizontal resistance around 1.2810 becomes necessary for the USD/CAD bulls to keep reins. Otherwise, overbought RSI hints at a pullback towards the early month top surrounding 1.2760.