USD/CAD stays defensive above 1.2800 on firmer oil, softer USD and mixed markets

• USD/CAD remains pressured around two-week low, eyes biggest weekly fall in eight.
• Boring Fedspeak joins downbeat US data to weigh on USD while Canada flashed upbeat second-tier statistics.
• Oil prices cheer softer USD, China’s covid conditions and fresh fears of supply crunch.
• The light calendar puts momentum traders at the mercy of risk catalysts.

USD/CAD struggles to defend 1.2800 threshold, despite the latest bounce off a fortnight low, as the downbeat US dollar favors commodities and Antipodeans during a sluggish Asian session on Friday. That said, the quote dribbles around 1.2825, after a stellar downside to refresh the two-week bottom the previous day.

US Dollar Index (DXY) braces for the first negative weekly loss in seven as markets seem to have tired of hearing the 50 bps support from the latest Fedspeak, even if some of the policymakers do push for aggressive actions. On Thursday, Kansas City Fed President and FOMC member Ester George said she is comfortable now doing half-point rate increases. However, Federal Reserve Bank of Minneapolis President Neel Kashkari mentioned the need for the Fed to be aggressive.

Also weighing on the greenback are recently downbeat US data. The latest print of the Federal Reserve Bank of Philadelphia’s Manufacturing Activity Index for May dropped to the lowest reading since May 2020, to 2.6 from 17.6 in April. Further, the Initial Jobless Claims in the week ending on 14 May rose to 218,000, the highest level since January, from 197,000 one week ago and expected rise of 200,000.

On the other hand, Canadian Industrial Production for April grew past 0.5% forecast to 0.8% MoM.

It’s worth noting that an improvement in China’s covid conditions and Shanghai’s plan of gradual unlock, backed by zero covid cases outside the quarantine area in recent days, keep the market sentiment positive and weigh on the US dollar’s safe-haven demand.

Elsewhere, the WTI crude oil rose more than 2.30% to near $109.00 on Thursday amid broad US dollar weakness and fears that Finland and Sweden will trigger fresh geopolitical tussles with Turkey with their push to join North Atlantic Treaty Organization (NATO). On the same line are concerns over Russia's aggressive military actions in Mariupol and global oil producers’ refrain from pumping more output.

Amid these plays, Wall Street closed mixed and the yields were softer, taking down the USD with them.

Looking forward, a lack of major data/events keeps the USD/CAD traders clueless and may push them to extend the latest weakness. However, risk catalysts will keep the driver’s seat.

Technical analysis

A clear downside break of the monthly rising channel earlier in the week joins the USD/CAD pair’s sustained trading below the 10-DMA, around 1.2920, to keep bears hopeful of revisiting the 50-DMA support, near 1.2700 at the latest.