USD/CAD pulls back from monthly high towards 1.2850 on firmer oil, USD retreat

• USD/CAD stays pressured around daily bottom during the first downbeat day in five.
• Oil prices cheer a pullback in USD, market’s consolidation to stretch previous day’s recovery.
• DXY traces Treasury yields to retreat from multi-day high despite hawkish Fed concerns.
• Canada Manufacturing Sales, US PPI can entertain intraday traders.

USD/CAD drops 0.16% as it snaps the four-day uptrend around 1.2870 during early Tuesday morning in Europe. The Loonie pair’s latest weakness could be linked to the US dollar pullback, as well as firmer prices of Canada’s main export item, namely the WTI crude oil.

That said, the US Dollar Index (DXY) drops 0.26% to 104.93 while consolidating the recent gains. The greenback gauge rallied to the highest levels since 2002 the previous day on hawkish Fed bets. On the other hand, WTI crude oil prices rise 0.50% towards regaining the $120.00 by the press time.

It’s worth noting that the US rate futures imply a 96% chance of the Fed raising rates by 75 bps at the June meeting, versus not more than 30% a few days back, per Reuters.

The pullback in the DXY could be linked to the easy US Treasury yields. The benchmark US 10-year Treasury bond yields pare recent gains around 3.36%, down 1.1 basis points (bps) from the highest levels since April 2011, marked the previous day.

Also likely to have triggered the USD/CAD pullback could be the risk-positive headlines concerning the US-China relations. “Senior Chinese diplomat Yang Jiechi held talks with US National Security Advisor Sullivan in Luxembourg. The two agreed to reduce misunderstanding and miscalculation, and properly manage differences, saying it is necessary & beneficial to keep communication channels open,” said the Global Times.

Alternatively, the covid woes in China and firmer expectations of the Fed’s aggression keep USD/CAD bulls hopeful. Beijing covid cases hit a three-week high, per Bloomberg, which in turn propels the virus woes and should have underpinned the US dollar’s safe-haven demand. “The city recorded 74 infections for Monday, the most since May 22, when Beijing saw a record number of cases for the current outbreak,” said Bloomberg.

Moving on, Canada’s Manufacturing Sales for April, expected to ease from 2.5% to 1.6%, will join the US Producer Price Index (PPI) for the stated month, expected 10.9% YoY versus 11.0% prior, to direct short-term USD/CAD moves. However, major attention will be given to Wednesday’s Federal Open Market Committee (FOMC).

Technical analysis

An area comprising multiple levels marked since March, around 1.2900, restricts the immediate upside of the USD/CAD pair. However, pullback moves remain elusive until the quote stays beyond the 50-DMA level of 1.2743.