USD/CAD reclaims 1.3800 as focus shifts to US inflation, oil struggles above $87.00

• USD/CAD has reclaimed the immediate hurdle of 1.3800 after a knee-jerk reaction.
• Market mood is getting mixed which advocates volatility ahead.
• Oil prices drop after the IMF cuts 2023 GDP projections.

The USD/CAD pair has recovered sharply after a knee-jerk reaction to near 1.3783 in the early European session. The asset is aiming to knock the day’s high at around 1.3830 as the overall risk profile is extremely negative ahead of the US inflation data. The 10-year US Treasury yields have recovered some of their losses after dropping to near 3.9%.

The mighty US dollar index (DXY) has also picked bids after dropping to near 113.00, however, confidence in the rebound move is absent. It would be worth watching whether the asset will recapture its fresh weekly highs at 113.60.

This week, the mega event will be the US Consumer Price Index (CPI) data, which will release on Thursday. As per the preliminary estimates, headline inflation will drop to 8.1% due to weak gasoline prices. While, the core CPI that doesn’t inculcate oil and food prices for calculation will release at 6.5%, higher than the prior print of 6.3%.

But before that, the release of the Federal Reserve (Fed) minutes will be keenly watched. The minutes will also provide viewpoints of all Fed policymakers toward interest rate targets for bringing price stability.

On the oil front, oil prices have dropped sharply to near $87.00 after the International Monetary Fund (IMF) cuts global growth projections. The institution has trimmed its 2023 global Gross Domestic Product (GDP) forecast to 2.7%, 20 basis points (bps) lower than expectations made in July, keeping the 2022 projections unchanged at 3.2%.

It is worth noting that Canada is the largest exporter of oil to the US and weak oil prices will weaken Canada’s fiscal balance sheet.