USD/CAD drops below 1.3600 as oil rebounds sharply, spotlight shifts to Employment data

• USD/CAD has slipped sharply below 1.3600 as the oil price has recovered sharply.
• Fed Powell cited that the central bank will be more data-dependent for further action.
• Headwinds of the US debt ceiling issue and banking jitters are weighing heavily on the USD Index.

The USD/CAD pair has slipped below the round-level support of 1.3600 after failing to sustain above the crucial resistance of 1.3620 in the Asian session. The Loonie asset has sensed pressure amid strength in the Canadian Dollar as oil prices have strongly rebounded after refreshing the annual low of $63.60.

Earlier, oil prices witnessed a bloodbath due to soaring fears of a global economic slowdown as major central banks are tightening their monetary policy further to arrest sticky inflation. The oil was heavily sold after the Fed hiked rates by 25 basis points (bps) but managed to recover some gains as US central bank opted for a neutral stance on interest rate guidance.

It is worth noting that Canada is the leading exporter of oil to the US and a rebound in oil prices will support the Canadian Dollar.

S&P500 futures have shown some recovery in the Asian session as investors are cheering the changed language on rate guidance. Fed chair Jerome Powell cited that the central bank will be more data-dependent for further action. The updated language from ‘some hikes would be appropriate’ is acting as music to the ears of investors.

The US Dollar Index (DXY) is making efforts for defending the crucial support of 101.07 despite critical headwinds of the debt ceiling issue and banking jitters.

Going forward, the US labor market data (April) will remain in the spotlight. Considering the consensus, the US economy added 179K jobs vs. the prior addition of 236K. The jobless rate is seen unchanged at 3.5%.

On the Canadian Dollar front, investors are awaiting the release of the Canadian Employment data. The net change in Employment is seen at 20K higher than the former addition of 34.7K. The Unemployment Rate is expected to increase to 5.1%.