USD/CAD pares recent losses below 1.3200 as WTI crude oil retreats, US Dollar edges higher
- USD/CAD picks up bids to consolidate the biggest daily loss in over a week.
- WTI crude oil bulls take a breather at three-month high as supply crunch fears recede, sentiment dwindles.
- US Dollar Index remains firmer at two-week high amid comparatively better PMI, upbeat yields.
- Second-tier US statistics may entertain traders ahead of Wednesday’s all-important FOMC decision.
USD/CAD licks its wounds near 1.3175-80 after marking the biggest daily loss in eight days. In doing so, the Loonie pair justifies the latest retreat in the WTI crude oil price, Canada’s key export item, as well as the firmer US Dollar, amid a sluggish Tuesday morning in Asia.
USD/CAD ignored the US Dollar bulls, as well as the Bank of Canada (BoC) survey, amid a rally in the WTI crude oil price to refresh the three-month high. However, the market’s reassessment of the oil fundamentals and cautious mood ahead of Wednesday’s Federal Open Market Committee (FOMC) monetary policy meeting announcements prod the Loonie pair sellers of late.
On Monday, Reuters reported the latest Bank of Canada (BoC) survey showing that most market participants expect the BoC to hold its policy rate at 5% until the end of 2023. The poll also mentioned that the median of the participants forecast the BoC to reduce the key interest rate to 3.50% in the fourth quarter of 2024.
On the other hand, the US Dollar Index (DXY) refreshed a two-week high near 101.40 during a five-day uptrend, mildly bid near 101.45 by the press time, amid comparatively better PMI data and upbeat yields. That said, the first readings of the US S&P Global Manufacturing PMI for July improved to 49.0 from 46.3 prior and 46.4 market forecasts while the Services PMI eased to 52.4 versus 54.0 expected and 54.4 previous readings. With this, the Composite PMI edged lower to 52.0 from 53.2 prior and 53.1 market forecasts. However, Chicago Fed National Activity Index for June slid to -0.32 from -0.28 prior (revised) and 0.03 market forecasts.
It should be noted that the overall weakness in the global PMIs bolstered market sentiment amid hopes of witnessing an end to the tightening cycle at the major central banks, which in turn allowed the WTI crude oil to remain firmer amid supply crunch fears. Also favoring the oil buyers were hopes of more stimulus from China and concerns that the US will buy more oil to refill its Strategic Petroleum Reserves (SPR). On the same line are chatters that the energy markets will remain tighter in late 2023. Amid these plays, the WTI crude oil jumped the most in six weeks to refresh the highest levels in three months to around $79.25, down 0.11% intraday near $78.75 by the press time.
Looking ahead, the US CB Consumer Confidence for July, expected at 112.1 versus 109.70 prior, will entertain the USD/CAD traders but major attention will be given to the Oil price and the market’s Fed bets for clear directions.
Technical analysis
USD/CAD recovery remains elusive unless providing a daily closing beyond the 21-DMA hurdle of around 1.3220. The downward trajectory, however, should conquer the one-week-old rising support line, close to 1.3140 at the latest, to recall the Loonie pair sellers.