USD/CAD dribbles above 1.3100 as oil’s rebound battles cautious mood ahead of Fed’s Powell

• USD/CAD pares the biggest daily loss in two weeks amid sluggish Asian session.
• Oil rebounds from nearly eight-month low, market sentiment dwindles ahead of ECB, Powell’s speech.
• BOC hikes rates by 75 bps, showed readiness for more.
• Fed Chair Powell’s ability to defend aggressive rate lifts will be crucial to watch.

USD/CAD picks up bids to refresh its intraday high near 1.3135 as it consolidates its recent downside during Thursday’s Asian session. In doing so, the Loonie pair pays little heed to the improvement in prices of Canada’s main export, WTI crude oil.

WTI crude oil extends late Wednesday’s rebound from a nearly eight-month low to $82.35 at the latest. In doing so, the black gold takes a U-turn from the downward sloping support line from May.

That said, the US dollar regains buyer’s love even as market sentiment remains sluggish as traders rush for risk-safety ahead of the week’s key events, namely the monetary policy meeting by the European Central Bank (ECB) and Fed Chair Jerome Powell’s speech. Also supporting the greenback could be the recent pause in the US Treasury yields, after reversing from the multi-day high, as well as hawkish Fed bets.

US Dollar Index (DXY) pares the biggest daily loss in a month around 109.80 as the US 10-year Treasury yields pause Wednesday’s downside by taking rounds to 3.27%, after taking a U-turn from the highest levels since mid-June. On the other hand, S&P 500 Futures fade bounced off the lowest levels since July 19 as it seesaws around 3,980 by the press time. Additionally, the CME’s FedWatch Tool signals a 77% chance of the Fed’s 75 basis points (bps) rate hike in September, versus 73% marked the previous day.

It should be noted that covid fears emanating from China also weigh on the market sentiment and favor the USD/CAD bulls as the South China Morning Post (SCMP) said, “Shenzhen reduces entry quota for Hong Kong travelers.”

On Wednesday, the Bank of Canada’s (BOC) 75 basis points (bps) rate hike and readiness to announce some more dragged the USD/CAD from a nearly two-month high. On the same line could be the market’s optimism spread by the firmer data from the major economies and Fed’s Beige, not to forget the mixed Fedspeak.

Looking forward, comments from the BOC’s Senior Deputy Governor Carolyn Rogers and Fed Chairman Powell will be crucial for the USD/CAD traders to watch for fresh impulse.

Technical analysis

Any pullback remains elusive unless the USD/CAD pair provides a daily closing below the monthly support line, at 1.3045 by the press time.