USD/CAD looks to regain 1.3400 as softer Canada inflation, unimpressive BoC’s Macklem join sluggish Oil price

• USD/CAD picks up bids to pare recent losses, defends the previous week’s rebound from two-month low.
• Canada inflation softens in March, BoC Governor Tiff Macklem fails to convince markets of hawkish bias.
• Oil price fails to cheer softer US Dollar, upbeat China data and API inventory draw.
• Second-tier Canada, US data and Fed’s Beige Book will be in focus for intraday directions, risk catalysts are the key.

USD/CAD regains upside momentum, despite being slow of late, as it grinds higher towards the 1.3400 round figure following the previous day’s failed attempt to recall bears. In doing so, the Loonie pair buyers ignore the downbeat US Dollar and sluggish Oil price amid softer Canada inflation data and unimpressive comments from Bank of Canada (BoC) Governor Tiff Macklem. That said, the Loonie pair prods a three-week-old descending resistance line around 1.3395 by the press time of the early Asian session on Wednesday.

On Tuesday, Canadian inflation, as measured by the Consumer Price Index (CPI), matches market forecasts of 4.3% YoY and 0.5% MoM for March versus 5.2% YoY and 0.4% MoM printed for February. More importantly, the Bank of Canada's (BoC) Core CPI, which excludes volatile food and energy prices, dropped to 4.3% YoY compared to 4.2% analysts’ estimations and 4.7% prior.

Following the downbeat inflation numbers, BoC’s Macklem appeared before the House of Commons Standing Committee on Finance while stating that the central bank considered the need for rates to stay higher longer to return inflation to 2% target. "Annual CPI inflation was down to 4.3% in March, led by falling goods price inflation, and we see further declines ahead. That's good news," added BoC’s Macklem while speaking in front of a parliamentary committee.

On the other hand, the US Housing Starts and Building Permits roiled the mood with downbeat prints for March on Tuesday. That said, the Housing Starts eased to 1.42M versus 1.432M prior and 1.40M market forecasts whereas the Building Permits dropped to 1.413M from 1.55M previous readings and analysts’ estimations of 2.2M. It’s worth noting that the NY Empire State Manufacturing Index and the US National Association of Home Builders (NAHB) housing market index marked upbeat prints on Monday and allowed the US Dollar buyers to remain firmer.

With the downbeat US data, the hawkish Fed talks failed to impress the US Dollar bulls and hence the US Dollar Index (DXY) reverses the latest rebound from a one-year low while printing the second daily loss in four. The greenback’s gauge versus six major currencies tracks downside yields to take a U-turn the previous day, not to forget the softer data. That said, the US 10-year and two-year Treasury bond coupons dropped for the first time in four days by the end of Tuesday.

That said, St. Louis Federal Reserve President James Bullard said, in an interview with Reuters, “Interest rates will need to continue to rise in the absence of clear progress on inflation.” On Monday, Richmond Fed President Thomas Barkin said that he wants to see more evidence of inflation settling back to target. Following him was Atlanta Fed President Raphael W. Bostic who recently mentioned that the economy is still gaining momentum, but inflation is too high.

Against this backdrop, S&P 500 Futures print mild losses and Wall Street closed mixed. It’s worth noting that WTI crude oil, Canada’s key export item, remains sluggish around $81.00 despite the downbeat US Dollar, firmer China data and price-positive inventory numbers from the American Petroleum Institute (API).

Moving on, Canada Housing Starts, Industrial Product Price and Raw Material Price for March will join Fed’s monthly Beige Book to direct immediate USD/CAD moves. However, the dovish bias surrounding BoC can keep the Loonie pair buyers hopeful.

Technical analysis

A daily closing beyond the 200-DMA hurdle of around 1.3410 becomes necessary for the USD/CAD to convince even short-term buyers.