- USD/CAD remains sidelined around one-week low, pauses two-day losing streak.
- US Dollar stays depressed while tracking a pullback in the Treasury bond yields.
- WTI defends previous day’s U-turn from 12-day top amid hopes of more US SPR releases.
USD/CAD portrays the market’s cautious mood as traders keep their eyes on the US Consumer Price Index (CPI) for January during early Tuesday. In doing so, the Loonie pair holds lower grounds near 1.3330 following a two-day downtrend.
That said, the quote’s latest weakness could be linked to the US Dollar’s failure to defend the previous weekly gains amid downbeat US Treasury bond yields. However, the softer price of Oil, Canada’s key export, joins the hawkish Federal Reserve (Fed) comments to tease USD/CAD bulls.
WTI crude oil remains depressed at around $79.50 amid the fears of more releases of the US Strategic Petroleum Reserves (SPR). With this, the black gold ignores the previous chatters suggesting an output crunch due to Russia’s threat of cutting production and the hopes of more energy demand, as conveyed by Organization of the Petroleum Exporting Countries (OPEC) Secretary-General Haitham Al Ghais.
Elsewhere, Fed Governor Michelle Bowman said that the Federal Reserve will need to continue to raise interest rates in order to get them to a level high enough to bring inflation back down to the central bank’s target rate, per Reuters. Before him, Philadelphia Federal Reserve President Patrick Harker pushed back the chatters of a Fed rate cut during 2023. However, the policymaker did mention, “Fed not likely to cut this year but may be able to in 2024 if inflation starts ebbing.”
It should be noted that the easing of the US inflation expectations from the multi-day high seemed to have weighed on the US Treasury bond yields and the US Dollar of late. That said, the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) eases from monthly highs to 2.31% and 2.44% at the latest.
While portraying the mood, S&P 500 Futures print mild gains while Wall Street closed in green and weighed on the US Dollar. That said, the US 10-year Treasury bond yields drop nearly two basis points to 3.69% at the latest.
Looking ahead, USD/CAD traders should closely observe the US CPI data as the recent Federal Reserve (Fed) comments appear light when suggesting more rate hikes. Also, the Fed policy pivot talks aren’t far from the table and hence any disappointment from the US inflation numbers won’t hesitate to propel the Loonie pair further toward the south. Also important to watch is the Oil price.
Unless crossing the 50-DMA hurdle surrounding 1.3480, the USD/CAD is on the way to test an upward-sloping support line from the mid-November 2022, close to 1.3270 at the latest.
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The USD/CAD continues to struggle near the 1.3300 handle as traders wait for the United States’ consumer price index (CPI) data due on Thursday. The pair has been trading in a tight range since the beginning of the week and has been unable to break out above the significant resistance level of 1.3300.
The lack of directional momentum has been attributed to the failing price of oil. Oil prices have been falling since late last week as demand continues to struggle to recover amidst the coronavirus pandemic. As Canada is a key producer and exporter of oil, the falling prices of the commodity have had a knock-on effect on the Canadian dollar.
The market is likely to be focusing on the US inflation data, due to be released on Thursday. If the figures come in lower than expected, this could place further downward pressure on the USD/CAD pair. However, if the data comes in better than expected, this could spark some buying activity in the pair and break the current deadlock.
In the meantime, analysts are advising traders to watch the 1.3300 area closely, which continues to act as a strong resistance level. A break above 1.3300 could open up room for further upside in the pair, while a move below this level could lead to further downside.
Overall, the negative economic backdrop and lack of direction in the oil markets has led the USD/CAD to remain stuck in a tight range. However, the upcoming US inflation data could be a catalyst for a breakout from this range, and traders should remain on alert for any price action at the 1.3300 handle.