Does the USDCAD have more upside potential?

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Canada's inflation rate rose by 0.7% in June to a 39-year high of 8.1%. After its July meeting, the Bank of Canada raised rates by 100 basis points and is expected to tighten its monetary policy even further.

BOC's aggressive monetary policy may be a positive sign for the USDCAD to move further to the downside, building upon the recent pullback. Last Monday, the USD slipped from a two-decade high to a one-week low against a basket of currencies. The USD may continue its decline, especially if the US Federal Reserve doesn't follow through with its hawkish rhetoric. For now, there are no hints that the Fed is shying away from enacting a 75-basis-points hike at its next interest rate decision.

Analyzing the current price action, the USDCAD recently climbed to 1.32237 but failed to close above the resistance level noted from November 2020. The USDCAD, which is now hovering inside a channel after rejecting at the upper boundary.

Will it make a pullback to continue the uptrend? If the pullback manifests, it may do so after the price taps the lower limit of the channel. But the momentum to the downside might be enough for the price to fall this low, before enacting a reversal to the top of the channel. 

Supporting this hypothesis is the suppressed Crude Oil price. WTI crude oil is now trading under US $100 per barrel as the risk of low supply is offset by the risk that demand will fall as major economies, such as the Euro Area, fall into periods of recession or stagflation. As one of the top commodity currencies, any negative news that sees further downside in oil could assist pessimism for the Canadian dollar. Although, this correlation has been erratic in recent weeks.