USD/CAD fades bounce off two-month low near 1.2850 amid risk-off mood

• USD/CAD retreats from intraday high, pares the biggest daily gains in over a week.
• Oil prices remain pressured around fortnight low amid recession fears.
• Headlines surrounding China add strength to the risk-aversion wave.
• Fedspeak, PMIs can entertain traders ahead of Friday’s US/Canada jobs report.

USD/CAD struggles to extend the week-start rebound as the Canadian traders return from the long weekend on Tuesday. That said, the Loonie pair eases back to 1.2850, following the initial run-up to refresh the intraday high near 1.2865.

The quote’s recent weakness could be linked to the markets’ risk-off mood, as well as the anxiety ahead of the key employment data from the US and Canada.

Headlines surrounding the US-China tussles over US House Secretary Nancy Pelosi’s visit to Taiwan and the likely hardships for Chinese chipmakers due to the American consideration of limiting shipments of American chipmaking equipment appear main challenge to the sentiment. On the same line could be the news from a Chinese media report suggesting the dragon nation’s readiness for a military drill in Bohai, South China Sea.

Furthermore, Bloomberg’s piece signaling no hard boundaries for Beijing’s Gross Domestic Product (GDP) also appears to weigh on the market’s risk appetite.         The news quotes people familiar with the matter as said, “China's top leaders told government officials last week that this year's economic growth target of "around 5.5%" should serve as guidance rather than a hard target that must be hit.”

It should be noted that the recent disappointing US PMIs joined the last week’s US Gross Domestic Product (GDP) to portray recession woes. On Monday, the US ISM Manufacturing PMI dropped to the lowest since 2020 in July as the activity gauge dropped to 52.8 versus 53.0 prior. However, the actual figures were better than the 52.0 market forecast. Also, final readings of the US S&P Manufacturing PMI eased below 52.3 initial estimates to 52.2, compared to 52.7 prior.

Against this backdrop, the US Dollar Index (DXY) fails to cheer the risk-aversion wave as it dropped to the fresh low in a month as bears approached the 105.00 mark before recently printing the 105.30 level. The greenback’s weakness could be attributed to the downbeat US Treasury yields as the benchmark 10-year US bond coupon declines 6.9 basis points (bps) to 2.54% at the latest. Further, Wall Street closed with mild losses while the S&P 500 Futures extend the previous day’s pullback from a two-month high.

Moving on, speeches from Chicago Fed President Charles L. Evans and President of the Federal Reserve Bank of St. Louis James Bullard will be important for fresh impulse. Also, Canada’s S&P Global Manufacturing PMI for July, expected 55.7 versus 54.6 prior, could offer additional directions to the USD/CAD pair traders.

Technical analysis

The 50-DMA hurdle surrounding 1.2860 challenges USD/CAD buyers cheering an upside break of the two-week-old descending trend line and the 100-DMA, close to 1.2775 by the press time.