The Canadian Dollar is soaring against anti-risk FX peers like the US Dollar and Japanese Yen. Likely owing to the latest coronavirus vaccine headlines, an eye-popping rally by crude oil prices stands out as a primary driver of Canadian Dollar strength. Pfizer PFE released clinical trial data this morning stating that its COVID-19 vaccine is more than 90% effective, which seems to have re-charged the material improvement in market sentiment following the US election last week.

CRUDE OIL PRICE CHART WITH USD/CAD OVERLAID: DAILY TIME FRAME (11 JUN TO 09 NOV 2020)

Chart by @RichDvorakFX created using TradingView

Generally speaking, there is a strong positive relationship between the Canadian Dollar and crude oil price action. As such, spot USD/CAD tends to move lower as the Loonie strengthens on the back of higher crude oil prices. This inverse correlation between USD/CAD and crude oil is illustrated in the chart above. The Canadian Dollar thus shows the potential to extend its advance, particularly against safe-haven currencies like the US Dollar and Japanese Yen, while expectations for economic growth and risk appetite improve in response to fading coronavirus concerns.

USD/CAD PRICE CHART: WEEKLY TIME FRAME (MAY 2017 TO NOVEMBER 2020)

USD/CAD price action now hovers at year-to-date lows following a 400-pip plunge over the last seven trading sessions. This came subsequent to the formation of a double-top pattern around the 1.3400-handle, which also aligned with a rejection of the 20-week simple moving average. Recent Canadian Dollar strength against the Greenback briefly pushed the major currency pair below the 1.2950-price mark, but spot USD/CAD bulls are currently attempting to defend 2019 lows.

Nevertheless, with expected market volatility imploding as measured by the S&P 500-derived VIX, or fear-gauge, coupled with crude oil prices spiking higher, there might be potential for USD/CAD to continue edging lower. This could bring the 76.4% Fibonacci retracement level of its September 2017 to March 2020 bullish leg into focus as an area of technical support that may alleviate selling pressure. On the other hand, if a return of risk aversion and reversal in crude oil prices materializes, this could fuel a rebound higher in USD/CAD price action.