USD/CAD struggles below 1.3900 as crude oil pares weekly losses, Canada inflation eyed

• USD/CAD seesaws around intraday low after a downbeat week-start trade.
• Geopolitical fears, OPEC+ determination to shrug off US push to halt supply cuts underpin WTI crude oil rebound.
• Hawkish Fedspeak, US data favored buyers before lack of major catalysts, optimism over UK triggered DXY pullback.
• Light calendar in the US may allow USD/CAD bulls to take a breather.

USD/CAD eases around a 29-month high, retreating to 1.3870 of late, as crude oil prices rebound and the US dollar bulls seek fresh catalysts to keep the reins during Monday’s Asian session. That said, the quote’s latest pullback could also be linked to the cautious mood ahead of this week’s key data from Canada.

WTI crude oil consolidates the biggest weekly loss since early August as a softer US dollar joins fears of a supply crunch. That said, the black gold price rises 0.70% intraday to regain $85.00 by the press time. US President Joe Biden’s failure to convince the global oil suppliers to put a halt on their output cut decision renews bullish bias for the energy benchmark despite economic fears and firmer fundamentals for the US dollar.

Elsewhere, the US Dollar Index (DXY) struggles to extend a two-week uptrend around the highest levels in 20 years amid a light calendar and a lack of market focus on the US-linked catalysts. Also exerting downside pressure on the DXY could be the week-start optimism in the UK after the firing of Chancellor Kwasi Kwarteng and hints of more rate hikes from the Bank of England (BOE) Governor Andrew Bailey.

Previously, the DXY managed to reverse Thursday’s notable losses after upbeat US data and hawkish Fed bets.

On Friday, US Retail Sales remained unchanged with 0.0% growth for September versus 0.2% expected 0.4% upwardly revised prior. Further, the preliminary readings of the Michigan Consumer Sentiment Index for October was 59.8, better than the forecasted figure of 59 and 58.6 previous readings. More importantly, the University of Michigan’s 1-year and 5-year inflation expectations increased for October, respectively to 2.9% and 5.1% compared to 2.7% and 4.7% priors in that order.

Also notable is the nearly certain case of the 0.75% Fed rate hike, as per the latest readings of the CME’s Fedwatch Tool for the next Federal Open Market Committee (FOMC).

Looking forward, the market’s upbeat start and a light calendar may help the USD/CAD bulls to take a breather ahead of the Bank of Canada (BOC) Consumer Price Index (CPI) and Retail Sales for September. Although the BOC appears mostly neutral when it comes to announcing any new deviations from the rate hike path, softer Canada data may push the CAD bulls to take a pause and propel the pair further toward the north.

Technical analysis

Unless breaking a six-week-old ascending support line, around 1.3810 by the press time, USD/CAD sellers are likely to remain cautious.