USD/CAD retreats to multi-day low below 1.2600 as oil flirts with 3-month high

  • USD/CAD fades rebounds off 7-week low, remains on course for fifth weekly loss.
  • Fears of a quicker normalization of monetary policy to weigh on economic growth are supporting US dollar gains ahead of Friday’s inflation data.
  • Oil prices encourage China’s gradual recovery from geopolitical covid concerns.
  • The OECD is cutting its global economic forecast to challenge market sentiment and probe bearish pairs.

USD/CAD is teasing a move back into the bear zone, after a brief trip with buyers, as the price retraces to seven-week lows in Thursday’s inactive Asian session. That said, the Loonie pair is fading from the previous day’s rebound off 1.2517 multi-day low, printing slight losses around 1.2550 at press time.

The latest weakness in the quote could be linked to the recent stability of the US dollar and firmer prices for Canada’s main export, WTI crude oil.

That said, black gold remains firmer around a three-month high on hopes of greater energy demand due to China’s unblocking of covid-induced activity restrictions. The drawdown of crude from the Strategic Petroleum Reserve (SPR) and the Russian-Ukrainian crisis also boosted the energy benchmark. “Commercial inventories of crude oil in the United States rose unexpectedly last week, while crude from the strategic petroleum reserve fell by a record amount as refiners increased production to pre-production levels. pandemics, the Energy Information Administration said on Wednesday,” Reuters said.

On the other hand, the US Dollar Index (DXY) regained bullish momentum as it closed with daily gains of 0.21% around 102.55 on Wednesday, after falling from 102.77. The greenback’s gains could be tied to widespread concerns about growth and inflation.

Market pessimism grew after White House spokeswoman Karine Jean-Pierre said they expected inflation numbers to be released at the end of the week are high. Also supporting the forecast are recently firmer US inflation expectations, based on the 10-year break-even inflation rate from the St. Louis Federal Reserve (FRED). That said, the inflation harbinger remains firmer around the 1-month high lately.

In a similar vein, the Organization for Economic Co-operation and Development (OECD) is downgrading the global growth outlook for 2022 while World Bank (WB) President David Malpass has warned that further tightening faster than expected could recall a debt crisis similar to that seen in the 1980s.

Amid those games, Wall Street benchmarks posted a two-day bounce while 10-year US Treasury yields rose 5.3 basis points to 3.027%.

Looking ahead, today’s monetary policy decision by the European Central Bank (ECB) appears to be the key event for the markets, as well as for USD/CAD traders due to its impact on the US Dollar. However, much attention will be paid to Friday’s US Consumer Price Index (CPI) for May and the Canadian jobs report. That said, the ECB’s hawkish expectations challenge recent gains in the US dollar.

Technical analysis

Short of providing a daily close above the monthly resistance line around 1.2570 at press time, USD/CAD prices are poised to test the late-April low near 1.2460.

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