USD/CAD ignores sluggish oil around seven-week low near 1.2530 as USD traces softer yields

• USD/CAD stays pressured towards refreshing multi-day low after dropping the most in a week.
• US Treasury yields drowned on fears that tighter monetary policy will weigh on growth.
• Mixed data, hopes from US budget also underpinned market’s consolidation.
• Light calendar emphasizes on risk catalysts ahead of the key data/events.

USD/CAD holds lower ground near 1.2530 as bears cheer softer US dollar while ignoring inactive oil prices during Wednesday’s early Asian session. The Loonie pair’s latest weakness could be linked to the retreat in the US Treasury yields as markets brace for this week’s key data/events.

US Dollar Index (DXY) snapped two-day rebound while reversing from a fortnight high, around 102.30 at the latest, as the US 10-year Treasury yields drop back below 3.0% while positing the first daily loss in seven.

The retreat in the US Treasury bond yields could be linked to the recession fears emanating from the faster monetary policy normalization by the major central banks. The fears grew on comment from World Bank (WB) President David Malpass who warned that faster-than-expected tightening could push some countries into a debt crisis similar to the one seen in the 1980s.

It’s worth noting that a record monthly drop in the US trade deficit, down 19.1% to USD87.1bn for April, joined Canada’s mixed Ivey PMI for April and softer trade numbers, to also push the Bank of Canada (BOC) and the Fed towards more tightening. The same amplified growth fears and helped in the US bond market consolidation ahead of the US Consumer Price Index (CPI), as well as Canada’s jobs report, up for publishing on Friday.

Elsewhere, prices of Canada’s main export item, WTI crude oil couldn’t much cheer the US dollar weakness as the black gold dribbled around $120.00, mildly offered by the press time, on fears of softer energy demand, amid recession woes, as well as downbeat API data. That said, the weekly prints of the American Petroleum Institute’s (API) Crude Oil Stock data for the period ended on June 3 flashed an addition of 1. 845M barrels versus the previous contraction of 1.181M.

Amid these plays, the Wall Street benchmarks another positive daily close and exerted downside pressure on the US dollar’s safe-haven demand.

Considering the market’s consolidation ahead of Friday’s key data/events, the USD/CAD bears are likely to keep reins until the shift in the market sentiment trigger a corrective pullback from the multi-day low.

Technical analysis

A clear downside break of the 61.8% Fibonacci retracement (Fibo.) of October 2021 to May 2022 upside, around 1.2590, directs USD/CAD prices towards a seven-month-old support line near 1.2500.