USD/CAD pierces 1.2600 on sluggish oil prices, strong USD ahead of second-tier US/Canada data

• USD/CAD picks up bids to refresh intraday high and extends the previous day’s bounce off six-week low.
• Risk-aversion wave weighs on commodity prices despite upbeat headlines from China.
• US dollar benefits from sour sentiment, strong yields ahead of the US inflation.
• Trade numbers from the US and Canada for April join May’s Canadian Ivey PMI to direct intraday moves.

USD/CAD stretches the week-start rebound from a 1.5-month low as it takes the bids to refresh intraday top around 1.2610 heading into Tuesday’s European session. In doing so, the Loonie pair justifies the US dollar’s strength, as well as downbeat prices of Canada’s main export item WTI crude oil.

That said, the US Dollar Index (DXY) rises for the third consecutive day, up 0.24% on a day near 102.65 by the press time, as the risk-off mood joins strong US Treasury yields to underpin the greenback’s upside momentum. That said, the US 10-year Treasury yields rise for the seventh consecutive day to 3.045%, up 0.5 basis points (bps) by the press time. It’s worth noting that the S&P 500 Futures drop 0.50% intraday to also portray the market’s sour sentiment.

The strength in the US Treasury yields could be linked to the recently escalating odds of a faster/heavier rate hike from the US Federal Reserve (Fed). Friday’s strong US Nonfarm Payrolls (NFP) and the last dose of hawkish Fedspeak before the blackout norm favored the US Treasury yields to snap a three-week downtrend by the end of Friday. As per the latest readings, market players anticipate around 70% chances of the Fed’s 0.50% rate hike in September versus nearly 30% odds favoring such an outcome a week ago.

On the other hand, upbeat headlines from China seems to battle the bears as China Securities Journal (CSJ) praised the country’s virus control and policy stimulus while expecting economic improvement in the second half (H2) of 2022. Previously, Beijing’s ability to overcome the pandemic and citing preparations to recover from the economic loss with faster unlocks joined US President Joe Biden’s likely easy stand for China, as far as showing readiness to remove Trump-era tariffs, seemed to have favored risk appetite.

Amid these plays, as well as the recently hiked OPEC+ output, WTI crude oil prices extend Monday’s pullback from a three-month high, down 0.30% intraday around $117.50 at the latest.

Moving on, Friday’s inflation data from the US and China, as well as the Canadian jobs report, will be important for the USD/CAD traders. On an intraday basis, the US/Canada trade data and Canada’s Ivey PMI for May will be important to watch for fresh impulses.

Technical analysis

Despite the latest rebound, a clear upside break of the previous support line from early April, around 1.2610 by the press time, appears necessary for the USD/CAD bulls to portray another battle with the 200-DMA hurdle surrounding 1.2660.