USD/CAD rebound stalls below 1.2400 amid sluggish oil, risk-off mood

• USD/CAD struggles to keep the bounce off four-month low.
• Oil prices dwindle amid inflation-led risk aversion, China-linked fears.
• Canada data came in softer, US ones were mixed as well.
• Canada Retail Sales, US PMIs are eyed but USD may benefit from safe-haven demand.

USD/CAD grinds higher past 1.2350 following its rebound from early June lows to post the strongest daily run-up in October. That said, the quote seesaws near 1.2370 by the press time of the initial Asian session on Friday.

Alike other currency pairs, USD/CAD also portrayed the US dollar’s recovery moves, the first in seven, while taking a U-turn from the multi-day low the previous day.

The US Dollar Index (DXY) rebound could be linked to the inflation-led fears and the China woes that dragged down the market sentiment and commodities, offering a double-down weigh on the Canadian Dollar. The reason could be linked to Canada’s heavy reliance on WTI crude oil as an export income.

Federal Reserve Governor Christopher Waller said on Thursday that the next few months will be critical to see whether inflation is transitory, as reported by Reuters. Previously, Federal Reserve Governor Randal Quarles and Cleveland Fed President Loretta Mester highlighted inflation fears.

Further, China’s troubled reality firm Evergrande managed to get an extension on a defaulted $260 million bond but the global rating giant Fitch cites property stress from Beijing to join the macro policy trade-off risks. This came after it failed to seal an asset sale deal with Hopson and flashed another red signal to the investors. Additionally, power cuts in China remain the key problem for the world’s biggest industrial player even as the government restarts some of the coal mines to battles energy shortages.

Against this backdrop, equities stalled and the US 10-year Treasury yields jump to a fresh high since early April. Also, WTI crude oil prices took a U-turn from a seven-year high recently pressured around $82.50.

It’s worth mentioning that the second-tier data from Canada, mainly linked to employment and housing came in softer while US economics were mixed, which in turn helped the USD/CAD to recover.

Looking forward, Canadian Retail Sales for August will precede the US PMIs for October to entertain the USD/CAD traders. However, major attention will be on the risk catalysts for fresh impulse.

Technical analysis

Despite bouncing off multi-day low, 10-DMA and a horizontal area comprising lows marked since early July, respectively around 1.2395 and 1.2425-30, guard short-term USD/CAD recovery moves. Meanwhile, June’s low near 1.2350 limits nearby declines.