USD/CAD pokes 1.3060 key support on firmer oil, DXY weakness, Canada employment data eyed

• USD/CAD takes offers to renew weekly low, prints three-day downtrend.
• Market’s cautious optimism favors oil buyers, weighs on US Dollar Index.
• Canada’s August month employment data becomes important after BOC’s hawkish bias.
• Inflation data from China-US will be important for clear directions.

USD/CAD portrays a three-day downtrend as it renews the weekly low around 1.3050 during Friday’s Asian session. In doing so, the Loonie pair cheers firmer prices of Canada’s key export item WTI crude oil while also cheering the risk-on mood and broad US dollar pullback. However, the pair traders remain cautious ahead of the monthly jobs report from Ottawa.

WTI crude oil extends the previous day’s bounce off an eight-month low to $83.20 by the press time while the gains of S&P 500 Futures portray a risk-on mood amid a sluggish session.  

That said, comments from US Treasury Secretary Janet Yellen, signaling likely positive change in the US-China trade ties, seemed to have helped the market sentiment of late. Recently firmer US data and hopes that the global central bankers will be able to overcome inflation-led blow with a holistic approach and higher rates also seemed to have favored the market’s mood. On the contrary, the Wall Street Journal’s (WSJ) piece challenges the optimism a bit by suggesting further hardships for China’s technology companies.

US Treasury Secretary Yellen raised hopes for softer inflation and US President Biden’s consideration to remove some tariffs on China. Talking about data, after recently firmer ISM PMIs and Goods Trade Balance, the US Weekly Initial Jobless Claims slumped to the lowest levels since May, with the latest figures beyond 222K.

Previously, the European Central Bank (ECB) matched the market’s expectations by announcing a 75 basis point (bps) increase in the key rates while Fed Chairman Jerome Powell said that they need to act forthrightly and strongly on inflation, as reported by Reuters. Earlier in the week, the Bank of Canada (BOC) also announced a 0.75% rate increase and showed readiness to do more to fight inflation.

Looking forward, a likely positive Net Change in Employment, as well as no major negatives from Canadian Unemployment Rate, should help the USD/CAD bears amid the positive sentiment. However, next week’s US inflation data will be crucial for clear directions.

Technical analysis

USD/CAD bears attack a one-month-old ascending support line near 1.3060, after witnessing a daily closing below the 10-DMA, around 1.3110 by the press time. That said, impending bear cross on the MACD and RSI retreat to favor sellers targeting the 21-DMA level of 1.3020 and the 1.3000 threshold.