USD/CAD recovery eyes 1.2600 on softer oil prices, risk-aversion ahead of NATO summit

• USD/CAD rebounds from two-month low, picks up bids to refresh daily high of late.
• WTI crude oil prices ease from two-week top as sour sentiment underpins USD strength.
• NATO action on Russia, US data will be crucial for near-term directions.

USD/CAD snaps seven-day downtrend while bouncing off late January’s levels during Thursday’s Asian session. That said, the Loonie pair picks up bids to refresh intraday high near 1.2580 by the press time.

The quote’s latest rebound could be linked to the market’s risk-off mood that underpins the US dollar run-up. Also supporting the pair buyers is the firmer US Treasury yields and a pullback in prices of Canada’s main export item, namely WTI crude oil.

It’s worth noting that the WTI crude oil renews intraday low to $112.65 by the press time, down 0.73% on the day whereas the US 10-year Treasury yields rise 1.5 basis points (bps) near 2.33% at the latest, following a pullback from three-year high on Wednesday. Firmer US Treasury yields favor the US Dollar Index (DXY) bulls to eye the 99.00 threshold at the latest.

While the hawkish Fedspeak could be linked to the bond rout, the market’s anxiety ahead of the key US data and President Biden’s meeting with the North Atlantic Treaty Organization (NATO) allies in Europe add to the US Treasury yields. The same helps the DXY to stay firmer and weigh on commodity prices.

Recently, the UK and the US readiness to send more help to Ukraine, despite Russian handling of a list of diplomats termed as ‘persona non grata’ to the US embassy, weigh on market sentiment. On the same line is news that US Senator John Cornyn said he met with US Treasury Secretary Janet Yellen to discuss Russian gold sanctions. Additionally, Russian President Vladimir Putin’s readiness to ask for oil payment in ruble to ‘unfriendly’ nations and covid woes in China, as well as Europe, also challenges the mood.

Looking forward, US preliminary PMIs for March and Durable Goods Orders for February will decorate the calendar while US President Biden’s meeting with the North Atlantic Treaty Organization (NATO) allies in Europe will be crucial as well. Forecasts suggest that the US Markit Manufacturing PMI may weaken to 56.3 from 57.3 previous readouts whereas the Services PMI seemed to have dropped to 56.0 from 56.5. Further, the US Durable Goods Orders growth for February is likely turned negative with -0.5% forecasts versus 1.6% prior.

Technical analysis

Recovery remains elusive below a six-month-old previous support line, around 1.2600 by the press time. Meanwhile, January’s bottom surrounding 1.2450 lures sellers of late.