Canadian dollar edged lower against USD counterpart on Monday amid weakness in the price of oil, a major Canadian export and the diverging monetary policy outlook between the two countries’ central banks.

USD/CAD touched highs of 1.3415, not far from Friday’s two-month peaks of 1.3435 and was at 1.3385 by 09.22 ET.

Oil prices started the week in negative territory on Monday as concerns over rising production and swelling U.S. stockpiles weighed. Oil is one of Canada’s major exports.

The Loonie, hit two-month lows on Friday and ended the week down 2% against the greenback,  worst performance since May.

Federal Reserve Chair Janet Yellen said on Friday a rate hike “would likely be appropriate” this month if employment and inflation continued to evolve in line with expectations.

The remarks cemented the view that the Fed will raise interest rates at its next meeting on March 14-15.

Futures traders are pricing  around an 84% chance of  hike at the Fed’s March meeting.

Bank of Canada kept rates on hold last week, said the “significant uncertainties” facing the economy.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.1% at 101.45.

Technically, the USD/CAD is now trading directly below a critical point of daily resistance. This point is the January 20th swing high, seen in the graph below at 1.3388. While the USD/CAD is trading well above its 10 day EMA (exponential moving average) and 200 day MVA (simple moving average), if prices fail to breakout higher it may suggest that the USD/CAD is prepared to retrace some of this week’s gains. Alternatively, a breakout above 1.3388 should be seen as a strong bullish continuation signal. A daily close to a higher high above this point would suggest that the current USD/CAD uptrend may have more room to run.

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