USD/CAD edges higher toward 1.25 as oil rally loses momentum

• WTI loses traction ahead of $64.
• DXY recovers to 92 in the NA session.
• USD/CAD looks to close the day with small gains.

The USD/CAD pair was able to erase its daily losses and turn positive on the day in the American trading hours with the US Dollar Index turning north after finding support near 91.70. As of writing, the pair was trading at 1.2485, gaining 0.2% on the day.

Earlier today, the greenback came under a heavy selling pressure after a Bloomberg report claimed that China was considering pausing its US government bond purchases. However, it didn't take long for the DXY to start retracing its drop as hawkish comments from the Dallas Fed President Robert Kaplan allowed investors to refocus on March rate hike expectations. Kaplan said that he saw three rate hikes in 2018 as the base case scenario and further added that reduced Chinese debt buying wouldn't disrupt the Fed's plan to gradually shed bond holdings.

On the other hand, following yesterday's rally witnessed in the late NA session on the back of a larger-than-expected crude oil inventory draw reported by the API, the barrel of West Texas Intermediate went into a consolidation phase, making it difficult for the loonie to show resilience against the USD. At the moment, the barrel of WTI is recording modest gains on the day around $63.40.

Furthermore, today's data from Canada showed that the total value building permits in November contracted by 7.7% in November and fell short of the market expectation of -0.3%.

Technical outlook

The first technical resistance aligns at 1.2500 (psychological level) ahead of 1.2555 (Jan. 4 high) and 1.2625 (20-DMA) for the pair. On the downside, supports are located at 1.2355 (Jan. 5 low), 1.2300 (psychological level) and 1.2230 (Sep. 20 low).