USD/CAD bulls move in to pick up the pieces after strong sell-off

• USD/CAD slides from the dollar rally tops and consolidates awaiting the next catalyst. 
• Oil prices are elevated and support the Canadian dollar. 

At 1.2853, the Canadian dollar is down by some 0.15% at the time of writing after sliding from a high of 1.2894 to a low of 1.2819 following a rise in the price of oil on Tuesday. The Canadian dollar is ultimately holding on to its gains from Friday, as the recent pullback in bond yields bolstered investor sentiment at the start of the week.

However, the inflation fears have advanced again and choppy trading persists, sinking US stocks midday at the same time that a consumer confidence gauge sank amid rising inflation expectations, undermining the improvement in investor sentiment after China relaxed certain COVID-19 restrictions. The Dow Jones Industrial Average slid over 1% with the S&P 500 down 1.5% and the Nasdaq Composite 2.44% lower by Tuesday afternoon. All three indexes traded higher earlier in the session.

The Conference Board's measure of consumer confidence fell to 98.7 in June from 103.2 in May while the Board's inflation expectations index rose to 8% from 7.5%, the highest since the series began in 1987.

Perky oil

Nevertheless, a booster for the commodity currency that is strongly linked to the energy sector, oil prices rose early on Tuesday after the G7 countries agreed to explore capping the price of Russian oil sold on the world market.

Additionally, French President Emmanuel Macron, citing a United Arab Emirates dignitary, reportedly said the UAE was producing crude at maximum capacity and that Saudi Arabia could only scale up its oil output by 150,000 barrels per day. At its annual summit in Germany, G7 leaders agreed to explore the possibility of capping the price of Russian oil to cut the country's take from exports as its invasion of Ukraine continues. West Texas Intermediate crude oil futures advanced 2.1% to $111.78 per barrel.

As for the greenback, bulls moved in on euro weakness as European Central Bank (ECB) President Christine Lagarde offered no fresh insight into the central bank's policy outlook. Lagarde said the central bank would move gradually but with the option to act decisively on any deterioration in medium-term inflation, especially if there were signs of a de-anchoring of inflation expectations.

The US dollar index (DXY), which had made a two-decade high of 105.79 this month, was last up 0.46% at 104.420. The DXY had been as low as 103.77 and as high as 104.606. 

For the Canadian economy, the Canadian Finance Minister Chrystia Freeland on Sunday said the economy still has a path to a "soft landing," where it could stabilize economically after the blow by the COVID-19 pandemic, without facing a severe recession that many fear.

In this regard, traders are in anticipation of Industry Level Gross Domestic product month on month for April this week, 30 June. Analysts at TD Securities expect industry-level GDP to rise by 0.3% in April, slightly above the flash estimate for a 0.2% rise. ''Look for increases in activity in both the goods and services sectors, but with goods leading the way. The flash estimate for May will be of particular interest, particularly given recent deterioration in consumer confidence.''

Nevertheless, speculators have cut their bullish bets on the Canadian dollar, data from the US Commodity Futures Trading Commission showed on Friday. As of June 21, net long positions had fallen to 4,105 contracts from 23,202 in the prior week.