USD/CAD retreats from 1.2900 as markets pare recent moves, oil stabilize near $106.50

• USD/CAD fades bounce off two-week low as markets consolidate recent moves.
• Risk-aversion underpins US dollar strength, downbeat oil prices.
• Canada CPI failed to impress bears as inflation fears propel flight to safety, softer US data was ignored as well.
• Fedspeak, second-tier US statistics may entertain momentum traders, risk catalysts are crucial too.

USD/CAD meets sellers around 1.2900, fading the previous day’s recovery moves from a fortnight low, as traders take a breather from the latest risk-aversion amid a sluggish start to the Asian session. That said, the Loonie pair takes offers to renew intraday low around 1.2875 by the press time.

Fears of a slowdown in the US GDP growth and the Fedspeak favoring ‘only’ 50 basis points (bps) of rate hikes for the next two meetings seem to have underpinned the latest consolidation in the market moves. A lack of major catalysts could also be linked to the recent moves, especially after the rout in risk assets the previous day.

That said, the Wall Street benchmarks saw the red while the US 10-year Treasury yields dropped 11 basis points (bps) to 2.88% by the end of Wednesday’s North American trading session.

Higher inflation numbers from the UK, Eurozone and Canada stoked fears of slowing growth and propelled risk-aversion on Wednesday. That said, Canada’s Consumer Price Index (CPI) couldn’t reject the USD/CAD bulls despite printing better-than-expected figures of 6.8% YoY for April.

Not only the sour sentiment fuelled the US dollar but also weighed on prices of WTI crude oil, Canada’s key exports, offering a double whammy of attacks on the Canadian Dollar (CAD). Also contributing to the oil price weakness are fears of demand slowdown, especially emanating from China due to the covid spread and fresh lockdown in Tianjin, the port city near Beijing.

That being said, USD/CAD traders may now keep their eyes on the risk catalysts for fresh impetus ahead of the second-tier data relating to housing and manufacturing from the US and Canada. Above all, clues over the firming of inflation fears will be crucial to watch.

Technical analysis

Failure to provide a daily closing beyond the 10-day EMA, around 1.2890 at the latest, joins the pair’s sustained trading below the previous support line from April 21, close to 1.2965, to keep USD/CAD bears hopeful of meeting the monthly low near 1.2715.