USD/CAD faces barricades around 1.3500 after a bumper rally, oil plunges

• USD/CAD has witnessed an intermediate resistance around 1.3500 after a juggernaut rally.
• US equities witnessed a massive sell-off as retail demand and PPI figures dropped heavily.
• Fed’s Bullard remained restrictive on interest rate projections despite weaker inflation projections.

The USD/CAD pair has witnessed a pause after a juggernaut rally around the psychological resistance of 1.3500 in the early Asian session. The Loonie asset is expected to turn sideways as the US Dollar bulls will need more fuel to extend the rally further. The major witnessed a steep fall amid a plunge in the oil price, which weakened the Canadian Dollar.

S&P500 witnessed an intense sell-off from the market participants after a lower-than-projected release of the United States Producer Price Index (PPI) and monthly Retail Sales data. The fight against stubborn inflation is demanding a cost from the economy in terms of weaker bargaining power in favor of producers and lower productivity due to rising interest rates by the Federal Reserve (Fed).

A sheer decline in the headline PPI (Dec) to 6.2% on an annual basis vs. the expectations of 6.8% and core PPI at 5.5% against the consensus of 5.9%, cleared that producers are forced to trim the prices of goods and services to maintain equilibrium due to declined retail demand. Apart from that, monthly Retail Sales data contracted by 1.1% while the street was expecting a contraction of -0.8%.

A decline in the US economic data cleared that inflation projections are expected to trim further, which supported the demand for US government bonds and a nosedive move in the 10-year US Treasury yields to 3.37%. The US Dollar Index (DXY) sensed a recovery after recording a fresh seven-month low at 101.20 to near 102.00 after hawkish commentary from St. Louis Fed's President James Bullard. Fed policymaker projected the interest rate peak in a 5.25-5.50% range despite a sheer fall in US PPI and Retail Sales data.

On the oil front, oil prices dropped firmly as weaker retail demand in the United States is going to trim oil demand. Producers will be forced to slash their production activities amid falling retail demand, which might impact oil demand heavily. This led to a plunge in the oil price to $79.40. It is worth noting that Canada is a leading oil exporter to the United States and lower oil prices may impact the Canadian Dollar.