USD/CAD picks up bids towards 1.2900 despite firmer oil, US inflation in focus

• USD/CAD renews intraday high to consolidate the biggest daily loss in three weeks.
• Geopolitical fears, US dollar retreat enabled oil’s rebound from multi-day low.
• Sluggish session, light calendar allows traders to pare recent moves.
• US CPI for July is the key, second-tier data, risk catalysts may entertain intraday traders.

USD/CAD licks its wounds as it renews daily tops near 1.2870 while paring the biggest loss since July 19 during Tuesday’s Asian session.

The loonie pair dropped the most in three weeks the previous as a recovery in prices of Canada’s main export, WTI crude oil, joined a pullback in the US dollar. Also exerting downside pressure on the USD/CAD prices was the cautious optimism in the markets ahead of the US Consumer Price Index (CPI) for July, up for publishing on Wednesday.

That said, the WTI crude oil rose by near 2.0% to $89.70 the previous day, around $90.20 by the press time. The black gold prices might have cheered firmer China trade numbers and cautious optimism in the markets to recover while ignoring hopes of more output from Iran.

On the other hand, US Dollar Index (DXY) traced Treasury yields to consolidate Friday’s heavy gains that offered the greenback gauge the first weekly positive in three. That said, the DXY registered a 0.19% daily loss to 106.37 by the end of Monday whereas the US 10-year Treasury yields dropped nearly seven basis points (bps) to 2.75% at the latest, following a 14-bps run-up the previous day.

It’s worth noting that the market’s previous risk-on mood appears to have faded of late as US President Joe Biden raised concerns over China’s actions near the Taiwan border. On the same line were fears of the Fed’s aggression and economic slowdown.  Considering Friday’s strong US jobs report, versus mixed employment data from Canada, the Fed funds futures price in a 69% chance of another 75 bps rate hike in September, per Reuters.

While portraying the mood, S&P 500 Future trim early Asian session gains around 4,145 by the press time.

Moving on, the US Nonfarm Productivity and Unit Labor Costs for the second quarter (Q2) could entertain USD/JPY traders. Forecasts suggest that the US Nonfarm Productivity could improve to -4.6% from -7.3% prior while Unit Labor Costs may ease to 9.5% versus 12.6% previous readings.

Also read: US CPI Preview: It is the hard core that counts, five scenarios for critical inflation data

Technical analysis

An impending bull cross on the MACD joins steady RSI (14) to support the USD/CAD buyers unless the quote breaks an upward sloping trend line from early June, close to 1.2835. That said, recovery remains limited as the five-week-old horizontal area near 1.2930-35 challenges the upside momentum.