USD/CAD sees further recovery to near 1.3400 as Fed to keep rates higher for longer

• USD/CAD is aiming for a recovery extension towards 1.3400 as USD Index has attempted a recovery.
• A consistent increment in US NFP, households’ earnings, and lower jobless rate indicate that the US CPI to remain stubborn ahead.
• Investors’ risk appetite has slimmed as US quarterly result season is entering its last phase.

The USD/CAD pair is gathering strength for extending the recovery move above the immediate resistance of 1.3385 in the early Asian session. The Loonie asset is being supported by a recovery in the US Dollar Index (DXY) and a loss in the oil’s upside momentum.

The USD Index has displayed a reversal move, which is yet to cross a lot of parameters, after defending the critical support of 101.00. Investors have jumped for the US Dollar ahead of the release of the US Inflation data, which will release on Wednesday. A consistent increment in US Nonfarm Payrolls (NFP), a significant jump in households’ earnings, and historic lows Unemployment Rate indicate that the US Consumer Price Index (CPI) is expected to remain stubborn ahead.

Federal Reserve (Fed) chair Jerome Powell was ‘loud and clear’ in May’s monetary policy meeting that further action will be data-dependent and scrutiny of April’s Employment report indicates that the Fed has a long way to go. Bill Winters, CEO of Standard Chartered Bank said Monday, the US Federal Reserve looks set to temporarily pause its aggressive monetary tightening agenda, but it has not yet finished the job, as reported by CNBC. He further added that the wage spiral is pushing up prices and causing inflation to become embedded.

Meanwhile, S&P500 futures are showing some losses in early Tokyo after a sideways Monday, indicating some decline in the risk appetite of the market participants as the quarterly result season is entering into its last phase.

On the oil front, oil prices are facing barricades in extending their recovery further as major economies are showing signs of recession due to higher interest rates. Accelerating borrowing costs by central banks have resulted in lower credit disbursement by commercial banks, indicating a forward decline in the oil demand. It is worth noting that Canada is the leading exporter of oil to the United States and signs of decline in the oil price impact the Canadian Dollar.