USDCAD advances towards 1.3400 amid DXY’s recovery and subdued oil prices

• USDCAD is looking to recapture 1.3400 as the risk-aversion theme gathers momentum.
• An expected contraction in Canadian Retail Sales will trim medium-term inflation expectations.
• Rising Covid-19 infections in China have impacted oil prices.

The USDCAD pair has rebounded after a corrective move to near 1.3370 in the Asian session. The asset has displayed recovery following the footprints of the US dollar index (DXY) a subdued performance at the oil counter. The DXY is attempting to establish above the critical hurdle of 107.00 as the risk profile is supporting the risk-averse theme.

S&P500 futures have witnessed some losses in early Tokyo after a positive Friday. The 500-stock basket ended flat last week due to the unavailability of any potential triggers. The 10-year US Treasury yields are expected to remain on tenterhooks amid less-hawkish guidance from Atlanta Federal Reserve (Fed) President Raphael Bostic.

Fed policymaker believes that the spell of 75 basis points (bps) rate hike is terminated and a lower rate hike will be cited in December monetary policy by the US central bank, as reported by Reuters. He further added that the Fed would pause hiking interest rates sooner and sees room for a mere 100 bps expansion ahead. A mild decline has been observed in 10-year US Treasury yields to near 3.81%.

Meanwhile, Lonnie investors are awaiting the release of the Retail Sales data, which is due on Tuesday. The economic data is expected to scale into negative territory at 0.7% vs. the prior expansion of 0.7%. A significant contraction in Retail Sales indicates that consumer spending is going through rough times, which will curtail mounting inflationary pressures.

On the oil front, oil prices have rebounded after a vulnerable show but are prone to the further downside amid rising cases of Covid-19 inflections in China. Going forward, the monetary policy of the People’s Bank of China (PBOC) will remain in focus. Being a leading oil importer, economic prospects in China have a serious impact on oil prices.