USD/CAD bulls eye 1.3490 hurdle on softer Oil price, sour sentiment, Canada inflation, US PMI eyed

• USD/CAD picks up bids to reverse the week-start losses but previous support line challenges the bulls.
• Geopolitical fears, return of full markets weigh on sentiment and underpin US Dollar rebound.
• Oil price bears the burden of firmer USD and fears of slow demand growth, higher inventories.
• Canada inflation eyed as BoC signaled a pause in rate hikes, US PMIs should be observed too.

USD/CAD clings to mild gains near 1.3480 as it reverses the previous day’s losses during early Tuesday in Europe. In doing so, the Loonie pair buyers cheer downbeat prices of Canada’s key export item, WTI crude oil, as well as the full market’s favor to the US Dollar, ahead of the key US and Canadian statistics.

WTI crude oil drops nearly 1.0% on a day as it renews its intraday low to near $76.60 by the press time. In doing so, the black gold reverses the previous day’s corrective bounce off a two-week low, the first in six days, amid fears of more supplies from the US and Saudi Arabia as Saudi Arabian Energy Minister Prince Abdulaziz bin Salman said on Monday, “OPEC+ is flexible enough to change decisions whenever required.”

Elsewhere, fears emanating from China, North Korea and Russia seemed to have joined the fresh run-up in the US Treasury bond yields, amid hawkish hopes from the US Federal Reserve (Fed), to underpin the US Dollar rebound. That said, the US and China alleged each other over the balloon shooting whereas the US diplomatic ties with Taiwan teased Beijing on Monday. On the same line, the United Nations (UN) Security Council is alarmed by Japan for North Korea’s missile testing and could help the US Dollar to remain firmer due to its safe-haven status.

It should be noted that the US Dollar Index (DXY) snaps a two-day losing streak while marking mild gains near 104.00. In doing so, the greenback’s gauge versus the six major currencies traces the US Treasury bond yields, as well as benefits from the traditional haven status. That said, the US 10-year Treasury bond yields pick up bids to near the highest levels marked since early November 2022, mildly bid around 3.86% at the latest. While portraying the mood, S&P 500 Futures declined 0.40% intraday to 4,070 at the latest.

Looking forward, the Canadian Consumer Price Index (CPI) for January, as well as the Bank of Canada (BoC) CPI Core for the said month, will be observed closely for immediate directions as the BoC has already teased a pause in the rates. As a result, softer prints of inflation data may allow the BoC to announce the policy pivot and propel the USD/CAD.

On the other hand, the preliminary readings of the US Purchasing Managers Index (PMI) data for February will be important for the US Dollar ahead of Wednesday’s Federal Open Market Committee’s (FOMC) Monetary Policy Meeting Minutes.

Given the recently hawkish bias for the Fed, versus the BoC’s dovish tone, the USD/CAD is likely to witness further upside unless the Oil prices witness a strong rally.

Technical analysis

A one-week-old support-turned-resistance line near 1.3490 guards the USD/CAD pair’s immediate upside ahead of the 61.8% Fibonacci retracement level of the pair’s December 2022 to February 2023 downside, near 1.3540 at the latest.

Meanwhile, the USD/CAD bears may aim for the 200-Simple Moving Average (SMA), close to 1.3400 by the press time, as an immediate target during the quote’s fresh downside past the latest low of 1.3440. Following that, the monthly bottom surrounding 1.3260 will be in focus.