USD/CAD faces hurdle above 1.2880 on weaker DXY, oil slips

• USD/CAD is facing severe resistance above 1.2880 amid a broader sell-off in the DXY.
• The downbeat US ISM data has strengthened the odds of a recession situation.
• Canada’s Unemployment Rate may increase to 5.2% vs. 5.1% reported earlier.

The USD/CAD pair witnessed a minor reversal from around 1.2880 at the open, however, the broad-based selling in the US dollar index (DXY) has brought offers in the asset. The latter displayed extreme selling pressure after re-testing its 23-year high at 105.79, which acted as a supply zone for the asset. The supply zone got triggered after the market participants considered the DXY an expensive bet.

The release of the weak US Institute of Supply Management (ISM) economic data halted the victory chariot of the DXY on Friday.  The downbeat US ISM figures on Manufacturing, Employment, and New Orders front escalated the recession fears in the US economy. Advancing recession fears may further trim the odds of an aggressive hawkish tone by the Federal Reserve (Fed) for its July monetary policy meeting.

As per the market consensus, the Fed is expected to maintain its status-quo and may announce a 75 basis point (bps) interest rate hike in July. Now, lower-than-expected to US ISM may compel the Fed to dictate a 50 bps rate hike or lower than that.

On the loonie front, investors are focusing on the employment data, which will release on Friday. A preliminary estimate for the Unemployment Rate is 5.2% vs. the prior print of 5.1%. This may keep the loonie bulls on the tenterhooks.

Meanwhile, the oil prices are oscillating minutely below $107.00 after a firmer recovery from $103.00 on Friday. The black gold is expected to remain sideways as investors are in a fix between the prolonged supply worries and renewed recession fears. The oil prices have reported negative monthly results in June after a spree of six monthly gains.