USD/CAD ignores firmer oil price to regain 1.2950 ahead of Fed Chair Powell’s showdown

• USD/CAD picks up bids to recover from one-week low.
• Oil prices reverse the pullback from three-week top amid mixed clues.
• Cautious mood ahead of the key data/events join risk-negative news to underpin recovery moves.
• Bulls need validation from Fed’s Powell to keep reins, US Core PCE Price Index is likely to ease in July.

USD/CAD recovers from weekly low as traders await the key US inflation gauge and Fed Chair Jerome Powell’s speech at the Jackson Hole in early Friday. That said, the Loonie pair takes the bids to 1.2955 by the press time.

In doing so, the quote ignores recently firmer prices of Canada’s main export, WTI crude oil. The black gold reverses the previous day’s pullback as it rises to $93.20 at the latest. Fresh tensions between the US and Iran, as well as China’s stimulus, seem to have favored the oil buyers. However, OPEC+ hint of more output, covid woes in Beijing and recession fears challenge the quote’s further upside.

Elsewhere, sour sentiment ahead of the Fed’s preferred inflation release and rate guidance from various important central bankers at the Jackson Hole seems to underpin the USD/CAD rebound. Adding to the sour sentiment could be the headlines surrounding China, Iran and Taiwan.

A covid-led lockdown near China’s Beijing joined the US suspension of 26 Chinese carrier flights in response to Beijing’s action to weigh on the risk appetite. Also, Taiwan’s increased military budget, a jump in the number of US diplomats visiting Taipei and US President Joe Biden’s hard stand on Iran’s position in Syria appears to have exerted additional downside pressure on the market sentiment.

It should be noted that the mildly positive US data and mixed Fedspeak joined China’s one trillion yuan stimulus a holistic approach by the domestic institutions to safeguard the world’s second-largest economy to underpin the risk-on mood the previous day.

Amid these plays, the S&P 500 Futures part ways from Wall Street’s gains and print mild losses around 4,195. Additionally portraying the risk-off mood is the two basis points (bps) of an increase in the US 10-year Treasury yields, at 3.045% by the press time.

Looking forward, USD/CAD prices are likely to remain firmer as a weak risk profile may help buyers. However, Fed Chair Powell needs to defend the hawkish moves to keep the pair bulls in the driver’s seat. Elsewhere, the US Core Personal Consumption Expenditure (PCE) Price Index, the Fed’s preferred inflation gauge, needs to cross the downbeat forecasts to keep the Loonie pair directed towards the north.

Technical analysis

50-DMA defends USD/CAD buyers around 1.2915 but recovery remains elusive until the quote stays below an upward sloping resistance line from May 12, near 1.3085 at the latest.