USD/CAD defends 1.2500 as Fespeak pokes bears at two-month low, oil prices ease

• USD/CAD pauses two-day downtrend near the lowest levels since mid-November.
• Fed policymakers convey inflation fears to reiterate rate hike concerns after US CPI jumped to 40-year high.
• US Trade Official raises concerns over Canadian proposal of Digital Services Tax.
• US PPI, Fedspeak will be important to watch for fresh impulse.

USD/CAD stays defensive around 1.2500, the lowest level in two months, during Thursday’s Asian session.

In doing so, the Loonie pair pauses the two-day downtrend amid recently hawkish Fedspeak and sidelined prices of Canada’s main export item, namely WTI crude oil. It’s worth noting that the Loonie pair’s drop on Wednesday could be linked to the US inflation figure’s matching of market forecasts, despite the refreshing 40-year high.

That said, US CPI jumped to the highest levels since 1982 while matching 7.0% YoY forecasts, up from 6.8% previous readouts. The monthly figures rose to 0.5% versus 0.4% expected but softened below 0.8% prior.

Following that US inflation data, Federal Reserve Bank of St. Louis President James Bullard said, per Wall Street Journal (WSJ), “Four rate hikes in 2022 now appear to be on the table and, in the face of high inflation, a rate hike in March seems likely.” On the same line were comments from the member of the Fed Board of Governors and incoming Vice Chairman of the FOMC Lael Brainard who said, “Inflation control is Fed's most important task. Additionally, President and CEO of the Federal Reserve Bank of San Francisco Mary Daly signaled a rate hike as early as March.

Elsewhere, “Deputy US Trade Representative (USTR) Jayme White expressed Washington’s ongoing concern about Canada’s proposed digital services tax in talks on Wednesday with Canada’s deputy trade minister, David Morrison,” USTR said in a statement per Reuters.

It’s worth observing that the US Treasury yields improve following the hawkish Fedspeak and the S&P 500 Futures also fail to extend the previous day’s gains amid mixed sentiment, which in turn stop the US dollar’s downside and probe oil buyers around a nine-week high past $82.00.

Looking forward, US Producer Price Index (PPI) for December and weekly jobless claims will join the Fedspeak to entertain USD/CAD traders.

Overall, USD/CAD bears are likely to keep the reins but corrective pullback can’t be ruled out amid the recent US-Canada political jitters as well as the broad covid fears.

Technical analysis

Although 200-DMA around 1.2500 challenges the USD/CAD bears targeting an ascending support line from May, near 1.2450, buyers remain away until the quote stays below the 100-DMA level of 1.2625.