USD/CAD consolidates losses below 1.2400 as oil retreats to $83.00

• USD/CAD picks up bids to recover Monday’s losses, stays around four-month low since October 15.
• WTI eases amid cautious market sentiment ahead of the key central bank events.
• Inflation expectations trouble Fed hawks, stimulus hopes, US/Canada data came out mixed for October.
• Canada Building Permits, API Weekly Crude Oil Stock will decorate calendar but pre-Fed mood restricts short-term moves.

USD/CAD licks the week-start wounds near 1.2375 amid a quiet Asian session on Tuesday. The Loonie pair benefited from the broad US dollar weakness the previous day before the latest shift in the risk appetite questioned the recovery move.

The US Dollar Index (DXY) pared the heaviest daily jump since June on Monday as market sentiment improved amid hopes of further stimulus and easy US PMI data, not to forget the US-China headlines. However, fears ahead of the key central bank events underpin the US dollar’s safe-haven demand and recall the USD/CAD buyers of late.

US President Joe Biden remains hopeful of passing the infrastructure spending plan this week and favored the market’s mood even as Republicans showed refrain from altering their demands. On the same line were comments from US Treasury Secretary Janet Yellen concerning the US-China Phase One trade deal.

The diplomat hinted reciprocal easing of tariffs may tame the inflation while also saying, “I don’t think US economy is overheating.” The US inflation expectations, as the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, justify Yellen’s comments by dropping for the fourth consecutive day from levels last seen during August 2006 by the end of Monday’s North American trading. However, the Fed Clevland’s version of the median PCE Inflation rate rockets higher and keeps the Fed tapering woes alive.

Elsewhere, US ISM Manufacturing PMI eased below the previous readings in June whereas the Markit PMIs also dropped past 59.2 market consensus and preliminary forecast for October. On the other hand, Canada’s Markit Manufacturing PMI crossed 57.0 previous reading and 57.2 expectations to 57.7 for October.

Against this backdrop, S&P 500 Futures struggle to extend Wall Street gains and the US 10-year Treasury yields also wobble around 1.56% after a sluggish start to the week.

Given the cautious mood in the market ahead of the RBA, Fed and the BOE meetings, USD/CAD traders may attention to Canada’s main export item WTI crude oil for fresh impulse. The black gold recently eased to $83.00 amid fears emanating from the monetary policy decisions and the OPEC+ verdict. For an immediate basis, weekly inventory data from the industry source, namely the American Petroleum Institute (API), prior 2.318M, will entertain the oil traders, as well as direct immediate USD/CAD moves.

Technical analysis

Multiple levels marked during July restrict immediate USD/CAD between 1.2300 and 1.2425-30. Also acting as an upside filter is September’s bottom near 1.2495 whereas a clear downside break of 1.2300 will direct the bears toward the mid-May peak near 1.2200.