USD/CAD stays depressed below 1.2700 as oil prices snap two-day downtrend, BOC’s Macklem eyed

• USD/CAD takes offers to refresh intraday low, prints the biggest weekly fall in five.
• WTI crude oil pauses previous declines amid softer USD, upbeat API data.
• Fed’s Mester, BOC’s Macklem will be observed for intraday direction ahead of US CPI.

USD/CAD pokes intraday low around 1.2690, down 0.11% on a day heading into Wednesday’s European session. In doing so, the loonie pair reverses the previous day’s recovery moves and is bracing for the biggest weekly fall since early January.

Broad US dollar weakness could be linked to the quote’s latest weakness. On the same line is a pause in the WTI crude oil declines after a two-day downtrend. As oil becomes Canada’s key export item, any positive moves weigh on the USD/CAD prices.

US 10-year Treasury yields retreat to 1.945%, down 1.5 basis points (bps) after rising to the highest levels since July 2019 the previous day. The bond coupon eased even after San Francisco Fed President Mary Daly favored the March rate hike in her latest speech. The policymaker additionally mentioned, “Fed can't be overly aggressive on rate increases,” while saying, “US inflation could get worse before it gets better.”

On the other hand, headlines conveying an explosion in Abu Dhabi and cautious optimism conveyed by US Health Expert Anthony Fauci, as well as Weekly Crude Oil Stock by the American Petroleum Institute (API), favor oil prices of late.

Talking about data, the US Goods and Services Trade Balance improved in December but Canadian International Merchandise Trade disappointed during the stated month, per the data released on Tuesday.

It should be noted that the market’s cautious optimism ahead of Thursday’s US Consumer Price Index (CPI) also favors the USD/CAD. For intraday moves, comments from Bank of Canada (BOC) Governor Tiff Macklem and Fed Cleveland President Loretta J. Mester will be important to watch.

Technical analysis

A convergence of the 50-DMA and 38.2% Fibonacci retracement (Fibo.) of October-December 2021 upside challenges the USD/CAD pair’s immediate upside around 1.2710. However, bullish MACD signals and the Loonie pair’s ability to stay beyond 1.2655-50 horizontal area for nearly two weeks keep the buyers hopeful to overcome the immediate hurdle. Hence, the pair is likely to remain sidelined between 1.2650 and 1.2710.