USDCAD is trending lower inside a descending channel on its short-term time frames and is currently testing resistance. Price could be in for a continuation of the downtrend if the ceiling holds.

This potential resistance is around the 100 SMA dynamic inflection point, which is below the 200 SMA to confirm that the selloff is more likely to resume than to reverse. In that case, USDCAD could make its way back down to the swing low at 1.3223 or the channel support closer to the 1.3200 major psychological mark.

Stochastic is already in the overbought region to signal exhaustion, so turning lower would confirm that selling pressure is picking up. RSI has some room to climb before reaching the overbought area, so the correction could keep going until it does.

USDCAD might take cues from crude oil prices, which in turn are moving based on market sentiment related to China’s COVID policy. Headlines suggesting that the country is moving closer to lifting its restrictions might mean more upside for business and consumer activity, which then translates to stronger demand for fuel and energy commodities.

On the other hand, indications that tighter limits are set to be put in place might mean downside for crude oil and the correlated Canadian dollar.

Later in the week, the release of the FOMC minutes would likely push dollar pairs around, as this would set the tone for interest rate expectations. Hawkish remarks might bring upside for USDCAD, especially since the meeting took place before another round of inflation reports highlighted stronger price pressures for the US economy.

Dovish remarks hinting at a pivot soon might mean some downside for the US currency, although the selloff could be short-lived if some policymakers express willingness to keep tightening aggressively.