USD/CAD drops back below 1.2600 on sluggish oil, US inflation, Canada employment eyed

• USD/CAD fades bounce off six-week low amid lackluster markets.
• Oil prices struggle around three-month high as China’s post-covid unlock battles supply-linked headlines.
• US NFP, hawkish Fedspeak renewed bets on Fed’s aggression but this week’s inflation data is the key.
• BOC hiked rates for the second time in 2022, which in turn dims importance of Friday’s jobs report.

USD/CAD takes offers to refresh intraday low around 1.2580, reversing the previous day’s rebound from a 1.5-month low, as traders brace for this week’s key data/events during a sluggish Asian session on Monday.

Other than the cautious sentiment ahead of the US Consumer Price Index (CPI) for May, as well as Canada’s employment data for the said month, the market’s mildly positive sentiment also weighs on USD/CAD prices. Further, firmer prices of Canada’s key export item, namely WTI crude oil, also exert downside pressure on the Loonie pair.

That said, headlines from China appear risk-positive as the world’s second-largest economy braces for a faster bounce off the covid-led lockdowns, also stays ready for more stimulus. “Dine-in service in Beijing will resume on Monday, except for the Fengtai district and some parts of the Changping district, the Beijing Daily said. Restaurants and bars have been restricted to takeaway since early May,” reports Reuters.

Additionally, likely ease in the US-China trade relations also seems to underpin the cautious optimism in the market. While justifying the same, US Commerce Secretary Gina Raimondo said, per Reuters, “President Joe Biden has asked his team to look at the option of lifting some tariffs on China that were put into place by former President Donald Trump, to combat the current high inflation.”

However, Friday’s upbeat US jobs report and hawkish Fedspeak challenge the USD/CAD bears. That said, US Nonfarm Payrolls (NFP) came in 390K for May, more than 325K expected but lesser than the upwardly revised 428K previous readouts. Further, the Unemployment Rate remained unchanged at 3.6% versus expectations of a slight decline to 3.5%. Additionally, the US ISM Services PMI fell to 55.9 in May, versus 56.4 market consensus and 57.1 flashed in April. Following the data, Cleveland Fed President Loretta Mester crossed wires while saying that the one problem that the Fed has is inflation. The policymakers also added that the risks of a recession have gone up.

Elsewhere, WTI crude oil prices dribble around a three-month high, down 0.12% around $118.70 by the press time, as traders struggle between hopes of higher demand from China and OPEC+ announcement of more output. Also weighing on the black gold prices could be the fears of the global recession.

Amid these plays, Wall Street benchmarks closed in the red and the US 10-year Treasury yields posted the first weekly gain in three whereas the S&P 500 Futures remain mildly bid at around 4,100 by the press time.

While the upbeat risk appetite and an absence of oil selling keep USD/CAD bears hopeful, the Bank of Canada (BOC) has already announced the rate hike and hence this week’s Canada jobs report may not hold much importance. On the contrary, the US CPI will be crucial to watch for fresh impulses.

Technical analysis

A clear downside break of the two-month-old support line, now resistance around 1.2610, directs USD/CAD prices toward a late April swing low near 1.2460.