USD/CAD stays defensive around 1.3600 amid sluggish oil, focus on US/Canada employment data

• USD/CAD braces for the first monthly loss in three.
• Oil prices snapped two-week downtrend amid geopolitical concerns.
• BOC’s disappointment keeps buyers hopeful as Fed is likely to have a long road before hitting the neutral rate.
• US/Canada employment data for October will also be crucial for clear directions, risk of further upside appears high.

USD/CAD struggles to defend 1.3600, retreating from intraday high near 1.3620 during Monday’s initial Asian session, as geopolitical fears underpin oil prices, Canada’s key export. Adding strength to the downside bias is the US dollar’s failure to pick up amid the cautious mood ahead of the key US Federal Reserve (Fed) monetary policy meeting, up for Wednesday, as well as Friday’s monthly jobs report for the US and Canada.

Recently increasing risks from the Russia-Ukraine tussles appeared to have helped the WTI crude oil to remain firmer above $88.00 after the first weekly gain in three. “Russia, which invaded Ukraine on Feb. 24, halted its role in the Black Sea deal on Saturday for an ‘indefinite term’ because it could said it could not ‘guarantee safety of civilian ships’ traveling under the pact after an attack on its Black Sea fleet,” reported Reuters. It should, however, be noted that the fears of recession contrast with the global oil producer’s (OPEC+) accord to cut the output to challenge the energy traders.

Elsewhere, Friday’s strong prints of the Fed’s preferred inflation gauge, namely the US Core Personal Consumption Expenditures (PCE) Price Index, coupled with the fifth quarterly fall in the US private consumption, challenged the USD/CAD traders. That said, the stated inflation gauge rose to 5.1% YoY for September versus 5.2% expected and 4.9% prior.

Even so, the Bank of Canada’s (BOC) slower-than-expected rate increase during the latest monetary policy meeting contrasts with the Fed’s likely hawkish performance, before slowing down in December, which should keep the USD/CAD buyers hopeful. Economists at Goldman Sachs raised the Fed rates outlook and saw the peak at 5% in March. On the same line was the CME’s FedWatch Tool which suggests an 80% chance of the Fed’s 75 bps rate hike during Wednesday’s Federal Open Market Committee (FOMC).

While portraying the mood, the yields are down and the equities are bracing for a good month with Dow Jones bracing the biggest monthly jump since 1976. Further, the S&P 500 Futures remain mildly offered near 3,910 amid the sluggish markets.

Looking forward, Friday’s US/Canada employment report for October will be crucial for the USD/CAD pair as the Fed’s 75 bps rate hike appears already prices. Even so, the hints for a slower rate increase from December could exert downside pressure on the quote.

Technical analysis

Despite bouncing off monthly support near 1.3500, the USD/CAD pair’s upside needs validation from a two-week-old resistance line, currently around 1.3730 by the press time.