USD/CAD bulls approach 1.2700 despite oil’s rebound, focus on Ukraine

• USD/CAD prints mild gains while keeping bounce off two-week low.
• Global markets remain mostly sluggish, eyes more developments on Ukraine-Russia talks.
• Canadian inflation data signal eased BOC’s path to follow the Fed, oil cheers headlines from China.
• Second-tier US data, risk catalysts are important for fresh impetus.

USD/CAD grinds lower around 1.2685, up 0.06% near the three-week bottom during the mid-Asian session on Thursday.

The loonie pair’s latest gains contrast the upbeat performance of Canada’s main export item, namely WTI crude oil. In doing so, the quote also fails to justify the previous day’s upbeat inflation data from Ottawa. The reason could be linked to the US Federal Reserve’s (Fed) 0.25% rate-hike and signal for six more lifts during 2022.

That said, the WTI crude oil prints the first positive day of the week while taking a U-turn from the late February levels tested the previous day. With this, the black gold rises to $96.67, up 1.62% intraday at the latest.

It’s worth noting that the US stock futures print mild losses whereas the Asia-Pacific equities track Wall Street gains. Further, the US 10-year Treasury yields decline 5.4 basis points (bps) to 2.13% while reversing from the highest levels since May 2019.

Behind the market’s indecision could be the lack of clearance over the Ukraine-Russia peace talks. Kyiv’s rejection of proposed neutrality in the 15-point peace plan and the International Court of Justice’s order to Russia to suspend the invasion of Ukraine challenge sentiment. However, the continuation of talks and the recently easy tone of Moscow keeps markets hopeful.

On the other hand, China reported a second day of easy covid numbers after refreshing the record numbers during the weekend. “China reports 1,317 confirmed COVID cases on March 16 versus 1,952 a day earlier,” per Reuters. Additionally, China Vice Premier Liu He’s push for the measures to boost the economy in the first quarter (Q1) also keeps the risk-appetite firmer.

Talking about data, the US Retail Sales figures for February eased below the forecasts and prior whereas the Control Group figures also turned negative. At home, Canada’s Consumer Price Index (CPI) rise past the 5.5% forecast and 5.1% prior to 5.7% YoY, which in turn paves the way for the Bank of Canada’s (BOC) rate hike and the USD/CAD weakness. Though, risk catalysts are more important for short-term directions.

Technical analysis

A convergence of the 100-DMA and the 50-DMA challenge the USD/CAD pair’s immediate upside, around 1.2685-90, amid bearish MACD signals.

On the flip side, an upward sloping support line from January 20, near 1.2630 by the press time, lures the USD/CAD bears.