USD/CAD steadies above 1.3800, traces lackluster oil prices ahead of US inflation

• USD/CAD grinds higher as bulls await key data after three-day ruling.
• Oil pauses downside as Saudi Arabia defends latest OPEC+ supply cut agreement.
• Cautious mood, hawkish Fed bets challenge movement even as softer yields tease bears.
• US CPI for September can keep buyers hopeful considering upbeat Fed Minutes.

USD/CAD stays defensive around 1.3820, pausing a three-day uptrend near the 2.5-year high, as traders turn cautious ahead of the key US inflation data during early Thursday. Also challenging the pair buyers could be the latest pause in the previously declining oil prices, Canada’s main export item.

WTI crude oil prices regain $86.00 after bouncing off a one-week low as Saudi Arabia rejects the latest US-led criticism of the Organization of the Petroleum Exporting Countries and allies including Russia, known collectively as OPEC+, supply cut agreement. The Saudi Arabian Foreign Ministry recently stated that the OPEC+ decision was unanimous, took into account the balance of supply and demand and aims at curbing market volatility.

Elsewhere, CME’s FedWatch Tool takes clues from the hawkish bias at the US central bank, as per the latest Fed Minutes, as it portrays a nearly 85% chance of the Fed’s 75 bps rate hike in November. That said, the latest Federal Open Market Committee (FOMC) Meeting Minutes failed to impress the US dollar bulls despite showing the policymakers’ hawkish bias amid concerns over more persistently high inflation. The Fed Minutes also mentioned that the participants agreed the Committee needed to move to, and then maintain, a more restrictive policy stance in order to meet the Committee’s legislative mandate to promote maximum employment and price stability.

It should be noted that the latest upbeat comments from Federal Reserve Governor Michelle Bowman defend the USD/CAD buyers as the policymaker said, “If high inflation does not start to wane she will continue to support aggressive rate rises aimed at taming price pressures,” reported Reuters.

On Wednesday, US Producer Price Index (PPI) declined to 8.5% YoY in September versus 8.4% expected and 8.7% prior. Further, the Core PPI eased to 7.2% versus 7.3% previous readings and market forecasts.

Against this backdrop, yields remained weak for the second consecutive day and the equities ended the day with mild losses while the US dollar snapped a five-day uptrend. Further, the S&P 500 Futures and the yields remain lackluster at the latest.

Moving on, the upbeat US PPI and hawkish Fed Minutes keep the USD/CAD buyers hopeful. However, the latest rebound in oil prices challenges the upside momentum.

Technical analysis

A two-week-old resistance line, around 1.3860 by the press time, challenges USD/CAD bulls.