USD/CAD retreats to 1.3000 on hawkish BOC bets, oil’s bounce, focus on Fed’s Powell, Canada inflation

• USD/CAD pares recent gains at 19-month high, renews intraday low of late.
• Higher inflation expectations ahead of Canada CPI data inflate hawkish hopes from the BOC.
• Fedspeak, recession fears join downbeat oil prices, despite the recent bound, to keep pair sellers hopeful.
• Qualitative catalysts to offer short-term directions ahead of Powell’s testimony, Canada inflation data.

USD/CAD takes offers to renew intraday low around 1.3000 as buyers take a breather around the highest levels since late 2020 amid a sluggish start to the week. That said, a corrective pullback in WTI crude oil prices and expectations of firmer inflation in Canada seems to have underpinned the Canadian Dollar’s (CAD) recent gains. Even so, the pair sellers remain cautious ahead of testimony from Fed Chair Jerome Powell and Canada’s headline inflation data, up for publishing during the late weekdays.

“A Conference Board of Canada survey for May shows that 78% of Canadians expect inflation to exceed the Bank of Canada’s (BOC) target of 2% over the next three years, up from 77% in April,” said Reuters. The survey results hint at the BOC’s further rate hikes amid a broad rush to tame inflation by the global central bankers.

Elsewhere, WTI crude oil prices rebound from the monthly low flashed on Friday, up 0.15% intraday around $108.70 by the press time.  The black gold dropped the heaviest since early May on the previous day as markets feared recession and rushed to the US dollar for a safe haven.

That said, US Dollar Index (DXY) manages to post a three-week uptrend despite falling around the Fed’s surprise interest rate lift by 75 basis points (bps). The greenback’s following gain could be linked to the broad chatters of a 1.0% rate hike and hawkish Fed policymakers.

While the US Industrial Production for May was softer, the Federal Reserve’s (Fed) bi-annual Monetary Policy mentioned the Gross Domestic Product (GDP) appears to be on track to rise moderately in the second quarter, per Reuters. Considering the data, Fed speakers were more confident over their latest vote for a 0.75% rate hike. Among them was Minneapolis Fed President Niel Kashkari who backed another 75 bps rate hike in July.

Recently, a piece of news from Reuters saying, “President Joe Biden's administration is reviewing the removal of some tariffs on China,” joins upbeat covid news from Beijing to exert downside pressure on the USD/CAD prices.

Against this backdrop, the US equities marked an unconvincing relief rally while the Treasury yields were also sluggish.

Moving on, Fed Chair Jerome Powell’s testimony will join Canada’s Consumer Price Index (CPI) and BOC CPI Core data for May to highlight Wednesday as the key event day for the USD/CAD traders.

Also read: USD/CAD Weekly Forecast: US dollar stars at the Fed after party

Technical Analysis

USD/CAD sellers attack an upward sloping trend line from June 08, near 1.3010, quickly followed by the 1.3000 psychological magnet, to retake control. However, March’s high of 1.2900 appears a decisive point for the pair traders to watch before eyeing a reversal of the current bullish trend.

Meanwhile, a daily closing beyond the recent double tops surrounding 1.3080 becomes necessary for the bulls.