USD/CAD rebound fades below 1.2400 on firmer oil prices, Canada Inflation eyed

• USD/CAD seesaws within a 30-pip trading range, edging higher of late.
• Risk-on mood, strong WTI crude oil prices battle multi-day-old horizontal support.
• US EIA Crude Oil Stocks Change, Canada CPI will be important catalysts to watch.

USD/CAD struggles to keep the bounce off at the lowest levels since early July, taking rounds to 1.2365-70 amid Wednesday’s Asian session. In doing so, the Loonie pair stays within the immediate trading range between 1.2375 and 1.2345 amid a brighter mood and upbeat prices of Canada’s key export item, WTI crude oil.

The USD/CAD dropped to the lowest since early July during Tuesday before bouncing off 1.2311 horizontal support, established in late April. The rebound also took clues from a pullback in oil prices after downbeat weekly inventory data from the industry source, namely the American Petroleum Institute (API). API Weekly Crude Oil Stock rose past 2.233M forecast to 3.294M for the period ended on October 15. It’s worth noting that the previous readout was 5.213M.

It’s worth noting that the latest comments from Fed Governor Christopher Waller also underpinned the USD/CAD rebound. “If inflation keeps rising at its current pace in coming months rather than subsiding as expected, Federal Reserve policymakers may need to adopt ‘a more aggressive policy response’ next year,” said the Fed policymaker per Reuters.

On the contrary, the downbeat US housing numbers questioned the Fed’s tapering plans. US Housing Starts registered a sharp fall in September, -1.6% MoM versus +1.2% prior, whereas the Building Permits registered the largest contraction since February, down 7.7% compared to 5.6% previous readouts.

Against this backdrop, the Wall Street benchmarks poked record tops whereas the US 10-year Treasury yields gained 5.7 basis points (bps) to rise to the highest levels since late May by the end of Tuesday’s North American session. Further, the US Dollar Index (DXY) dropped to a three-week low before consolidating losses around 93.77 at the latest. That being said, S&P 500 Futures struggle for clear direction amid uncertainty over US stimulus and Fed tapering tantrums by the press time.

Looking forward, the official weekly oil inventory data from the Energy Information Administration (EIA), expected 2.233M versus 6.088M prior, will direct short-term oil prices and help USD/CAD traders. However, Canada’s Consumer Price Index (CPI) for September, market forecast 4.3% YoY versus 4.1% prior, as well as the BOC CPI Core which is expected to improve to 0.3% from 0.2% previous readings, will be crucial for USD/CAD moves. Should the oil prices stay firmer around multi-month top amid supply outage fears, also backed by hopes of improving demand, upbeat Canadian data may weigh on the pair.

Technical analysis

A horizontal area comprising multiple levels marked since late April challenge USD/CAD bears near 1.2315-10. The corrective pullback also takes clues from the upside break of a monthly resistance line, now support around 1.2350. Even so, the pair buyers remain cautious until the quote rises past the 100-DMA level of 1.2510 on a daily closing basis.