USD/CAD aims to build cushion around 1.3300 as oil price plunges, Fed policy hogs limelight

• USD/CAD is building a firmer cushion around 1.330 amid sheer weakness in the oil price.
• The US labor market might not remain tight enough as opportunities are declining amid a bleak economic outlook.
• The rising oil supply from Russia at discounted prices to Asia triggered volatility in the oil price.

The USD/CAD pair is gauging an intermediate cushion around 1.3300 in the early Asian session. The Loonie asset is showing signs of exhaustion in the downside trend despite the upbeat market mood. A sheer fall in the oil price was driven by weaker demand projections in the United States due to the expectations of an upcoming fresh interest rate hike by the Federal Reserve (Fed) on Wednesday.

The US Dollar Index (DXY) is auctioning inside the woods from the past few trading sessions amid ambiguity in the market sentiment on a broader note. The upside in the USD Index is capped around 101.80 while the downside is supported near 101.20.

S&P500 settled January last week on a positive note despite softening demand as reported by the United States core Personal Consumption Expenditure (PCE) Price Index (Dec) data. Corporate earnings are being impacted by declining retail demand but are delighted by the Federal Reserve (Fed) as it adds to the downside filters for inflation.

This week, the primary catalyst that will keep investors uneasy is the interest rate decision by the Fed on Wednesday. As per the CME FedWatch tool, Fed chair Jerome Powell might increase interest rates by 25 basis points (bps) to 4.50-4.75%. But before that, the release of the Automatic Data Processing (ADP) Employment data will remain in focus. The economic data is seen at 86K, significantly lower than the former release of 235K. Labor demand is softening dramatically as firms have paused their recruitment process due to the bleak economic outlook.

On the oil front, investors dumped the oil price late Friday after Reuters reported that Russia’s oil loadings from its Baltic ports were set to rise by 50% in January from December levels in order to address the strong demand coming from Asia. Russian oil supply is accelerating despite the sanctions by the Western cartel. It is worth noting that Canada is a leading exporter of oil to the United States and lower oil prices impact the Canadian Dollar.