USD/CAD defends 1.2300 around three-month low even as oil renews seven-year high

• USD/CAD awaits fresh clues to extend two-day downtrend.
• Firmer inflation at home joins strong WTI crude oil prices to favor bears.
• Risk-on mood, broad USD weakness adds strength to the bearish bias.
• US data, risk catalysts will be in focus amid a light calendar in Canada.

USD/CAD licks its wounds around three-month low, sidelined near 1.2320 during Thursday’s Asian session.

The Loonie pair refreshed the multi-day bottom during a two-day fall the previous day after the Canadian inflation data came out better-than-expected.  Further, firmer prices of Canada’s main export item WTI crude oil and US dollar weakness added to the downside pressure.

In addition to Canada’s headlines Consumer Price Index (CPI) for September, the Bank of Canada’s (BOC) CPI Core figures also rose past YoY forecasts and prior readings. The same hints at the BOC’s further tightening of monetary policy and favor for the USD/CAD bulls.

Elsewhere, oil prices cheered lower-than-anticipated weekly inventory data from the Energy Information Administration (EIA), as well as US dollar weakness and risk-on mood. That said, WTI crude oil jumped to the fresh high since October 2014 of $83.55, around $83.40 by the press time.

That said, the US Dollar Index (DXY) prints a six-day south-run near the lowest levels in three weeks, flashing 93.60 level by the end of Wednesday’s North American session. The greenback gauge failed to benefit from the tapering signals from Federal Reserve Governor Randal Quarles as equities rallied on firmer earnings and the Treasury yields also softened after refreshing the multi-day top.

While portraying the mood, Wall Street benchmarks gained upside momentum amid strong Q3 reports from the industry leaders like Tesla and chatters over US stimulus passage. The same exerted pressure on the 10-year Treasury yields around 1.66%, up 2.6 basis points (bps), following the bond yields’ run-up to the five-month high.

Given the lack of major data/events, USD/CAD traders need to pay close attention to the risk catalysts and the second-tier US economics for fresh impulse.

Technical analysis

A clear downside break of 61.8% Fibonacci retracement of June-August upside, near 1.2365, directs USD/CAD towards late June’s low surrounding 1.2250 should the quote manage to conquer the 1.2300 immediate support.