USD/CAD slides to 1.3550 despite softer oil price, US PCE inflation eyed

• USD/CAD fades the previous day’s rebound from a five-week low.
• US dollar’s struggle to defend bulls ahead of Fed’s preferred inflation gauge tease pair sellers.
• Risk aversion weighs on energy prices even as demand expectations increase.

USD/CAD takes offers to refresh the intraday low near 1.3550, reversing the previous day’s bounce off the monthly bottom, during Friday’s Asian session.

In doing so, the Loonie pair ignores the recent weakness in Canada’s main export item, WTI crude oil, as the US Dollar Index (DXY) consolidates the previous day’s gains amid the recent decline in the hawkish Fed bets.

That said, the DXY retreats to 110.50, following Thursday’s recovery from the five-week-low, as Fed hawks get mixed details of the overall strong US data. The US Gross Domestic Product (GDP) rose 2.6% on an annualized basis, more than expected, in the third quarter (Q3). Even so, a fifth consecutive fall in private consumption challenged the Fed hawks as it showed the policymakers are gradually nearing the target of slowing down private domestic demand, which in turn might favor the easy rate hike talks for December in the next week’s Federal Open Market Committee (FOMC) meeting.

It should be noted that the sluggish US Treasury yields and the risk-off mood also challenge the US dollar. The US 10-year Treasury yields dropped to a two-week low on Thursday and are bracing for the first weekly loss in 11, which in turn allowed equities to have a nice week despite the latest weakness in numbers.

At home, the Bank of Canada’s (BOC) 0.50% rate hike, versus the 0.75% expected, joins the policymakers’ optimism to keep the USD/CAD bears hopeful.

Looking forward, the US Core PCE Price Index for September, expected to rise to 5.2% versus 4.9% prior, will be crucial for the USD/CAD pair traders to watch for clear directions. A firmer print of the Fed’s preferred inflation gauge could add strength to the yields and hawkish Fed bets, which in turn will be favorable for the pair buyers.

Technical analysis

Bearish MACD signals join the pair’ sustained trading below the 21-DMA resistance near 1.3700 to keep sellers hopeful. However, a daily closing below 1.3505-3495 support zone appears necessary to confirm further downside.