USD/CAD eases from two-year high above 1.3700 as oil bears pause ahead of US macro

• USD/CAD probes five-day uptrend, retreats from 28-month top.
• Risk-aversion underpinned US dollar, drowned oil prices amid fears of aggressive central bank actions, recession.
• US Durable Goods Orders, CB Consumer Confidence will be important for immediate directions.
• Rush to risk safety can keep USD/CAD buyers hopeful even if the US data disappoints.

USD/CAD bulls take a breather around 1.3730 during Tuesday‘s Asian session, after a five-day uptrend to refresh the yearly top. That said, the Loonie pair’s latest weakness could be linked to a halt by the oil bears, Canada’s key export item, as well as the market’s wait for the important US data.

US Dollar Index (DXY) jumped to a fresh 20-year high the previous day as traders sought safety against the risks emanating from the GBP/USD’s slump to the all-time low. Also keeping the US dollar firmer were the upbeat Treasury yields and the signals that many central banks will be forced to defend their currencies against the greenback.

The risk-off mood joined the firmer US dollar to weigh on the WTI crude oil that dropped 3.70% to poke the yearly low near $76.00, around 76.60 by the press time. Additionally, chatters that Germany will manage energy reserves to make it through this winter, even amid the Russia-Ukraine crisis, kept the black gold pressured.

Furthermore, downbeat US data and hawkish Fedspeak also propelled the USD/CAD prices. Chicago Fed National Activity Index weakened to 0.0 in August versus 0.09 market expectations and an upwardly revised prior reading of 0.29. Even so, Boston Fed President Susan Collins said, per Reuters, “Getting inflation down will require slower employment growth, somewhat higher unemployment rate”. Following that, Cleveland Fed President Loretta Mester said on Monday that if there is an error to be made, better that the Fed do too much than to do too little.

Amid these plays, the yields rally as the traders sought premium to hold riskier assets while the equities dropped, which in turn helped the US dollar to remain firmer.

Looking forward, the USD/CAD bulls are likely to keep reins despite the latest pullback. However, the US CB Consumer Confidence for September and Durable Goods Orders for August will be crucial to watch for intraday guidance.

Also read: US Consumer Confidence Preview: Near-term relief or more risk aversion?

Technical analysis

A broad resistance area established between April and May 2020, respectively around 1.3830 and 1.3850, challenge USD/CAD buyers amid overbought RSI conditions. The anticipated pullback, however, needs validation from June 2020 top near 1.3715.