USD/CAD traders await key US CPI, testing 1.3400 with bulls in play

• USD/CAD bulls are in play and testing 1.3400.
• US CPI could now be the key driver for the week. 

USD/CAD is flat in Asia, testing 1.3400 having travelled between a tight range of 1.3381 and 1.3406 so far. The US Dollar is making a slight recovery although the domestic jobs data is keeping a lid on the pair as the prospects for higher local rates continue to support the Loonie. 

While there is good news being priced into the markets as China reopens, supporting a bid in the oil price on the week so far, investors are looking ahead to this week's United States inflation data following a slew of market-impacting economic data last week from the US economy to start the year off. 

In the meanwhile, however, the stronger jobs number from Canada that came in data on Friday has put the Bank of Canada back in the hot seat. Analysts at TD Securities explained that ''another hike this month is not likely to resonate much with the CAD given where markets are priced. Instead, there is the chance that this hike - if realized - is perceived as its last given the pressures emerging on household imbalances and housing in general.''

As for USDCAD, the analysts at TD Securities ''think 1.35 acts as a broad anchor for now, but we expect a more definitive make-or-break moment for the pair and the CAD, in general, co the BoC decision;'

Technically, the analysts said, they note that ''USD/CAD is coiling into a flag formation established from the Oct highs/Aug 2022 lows.'' Strategically, they are biased for CAD to underperform in the first half of this year. ''Tactically, the CAD is likely to remain steady to slightly firmer on crosses following the Nonfarm Payrolls number.''

Markets are still digesting Friday’s Nonfarm Payrolls giving credence to a pivot from the Federal Reserve. This is what makes this week's inflation data so important. ''The jobs report was strong overall as Unemployment dropped back to the cycle low of 3.5%, supporting the view that the labour market remains red hot,'' analysts at Brown Brothers Harriman explained.

''However, markets focused on the bigger than expected drop in average hourly earnings to 4.6% year over year.'' However, the analysts argued that ''if the labour market remains as tight as it seems, wages are unlikely to fall much further in the coming months.''