The loonie was the only major currency to have outperformed the dollar last year. Will we see more of the same in 2022?

If anything, I would argue that question will go down to how hawkish the BOC will be compared to the Fed. Both central banks are on course to at least hike rates three times, with the BOC perhaps going one further. As such, the rhetoric put out will be key in determining this particular pivot factor for USD/CAD.

But let's put aside the big picture narrative for the time being. Amid thin markets, there was a decent surge in the loonie at the end of last week and that saw USD/CAD fall to test key support levels:

USDCAD D1 03-01

The pair ran into a test of the 100-day moving average (red line) and 50.0 retracement level @ 1.2626. Buyers kept a defense of the support region and there is a decent bounce today to 1.2680, even with higher oil prices and more positive risk sentiment.

The near-term chart still indicates sellers keeping well in control below 1.2762-97 (key hourly moving averages). As such, even with the light retracement today, the latest downside pressure isn't quite extinguished.

That said, the key support levels above are holding and that is something to take note of as well. Below that, there is further support from the 8 December low @ 1.2606. Sellers need to break through the levels highlighted to heap more pressure perhaps towards the 200-day moving average (blue line) next @ 1.2495 currently.

Oil prices and risk sentiment will be key factors dictating the state of play in the week ahead, not least with OPEC+ on the agenda tomorrow and real money flows coming back in to the market.

But from a structural play, the monetary policy battle between the BOC and Fed may take precedence instead. In that lieu, the inflation outlook is going to be a key point to watch in trading this year.

That will be a major focus for USD/CAD as it will also have repercussions for the loonie's appeal as a risk trade.