USD/CAD rebound eyes 1.2700 on softer oil prices, BOC’s Macklem, US data in focus

• USD/CAD snaps two-day downtrend to bounce off weekly low.
• Oil prices remain lackluster amid absence of major catalysts, cautious mood ahead of OPEC+ verdict.
• Canada GDP improved in November, US ISM Manufacturing PMI prints 20^th expansion in January.
• BOC’s Gravelle, Canadian Building Permits add to the watcher's list ahead of key jobs report.

USD/CAD pauses two-day downtrend around the weekly bottom below 1.2700 amid early European morning on Wednesday. In doing so, the Loonie pair tracks sluggish oil prices and indecisive markets to consolidate recent losses while heading into the key data/events.

WTI crude oil, Canada’s main export item, drops 0.20% intraday to $87.50 while portraying the indecision after Friday’s jump to an eight-year high. In doing so, the energy traders struggle amid mixed concerns over Russia-Ukraine tussles, the recent chatters over the China Competition Bill and pre-OPEC+ caution.

Elsewhere, Fed policymakers’ refrain from openly supporting a rate hike in March joins firmer US and Canadian data to trouble USD/CAD traders.

On Tuesday, Canada’s GDP for November rose past 0.3% market consensus to 0.6% YoY while the Markit Manufacturing PMI for January eased to 56.2 versus 56.9 expectations.

On the other hand, US ISM Services PMI for January rose to 57.6 versus 57.5 expected, marking the 20^th straight expansion of the manufacturing activity. That said, Atlanta Fed President Raphael Bostic said on Tuesday that there is a "real danger" of inflation expectations drifting from the Fed's 2.0% target to 4% or higher. On the other hand, St Louis Fed President James Bullard said that he thinks it is an open question whether the Fed will have to become more restrictive (i.e. raise rates above the "neutral" 2.0%-2.5% zone). 

Amid these plays, the US 10-year Treasury yields fade the previous day’s rebound from a weekly low near 1.80% while upbeat prints of the Wall Street benchmarks seem to help the S&P 500 Futures to remain firm around 4,555 at the latest.

Moving on, statements from the Bank of Canada (BOC) Deputy Governor Toni Gravelle and Governor Tiff Macklem will be crucial as markets brace for the BOC rate hike after the latest disappointment. It’s worth noting that BOC’s Macklem recently conveyed dislike for inflation.

Additionally, the early signal to Friday’s US Nonfarm Payrolls (NFP), namely the US ADP Employment Change for January, expected 207K versus 807K prior, will also be important to determine short-term USD/CAD moves ahead of Friday’s employment data from the US and Canada.

Technical analysis

A two-week-old support line restricts immediate USD/CAD downside around 1.2690 ahead of the 100-DMA level of 1.2625. Bullish bias, however, needs validation from a descending resistance line from December 23, near 1.2790. That said, firmer RSI and bullish MACD signals join the pair’s refrain to break immediate key supports to keep buyers hopeful.