USD/CAD eases from 1.2900 as escalating recession fears trim DXY’s appeal

• USD/CAD has slipped below 1.2880 after facing barricades around 1.2900.
• Escalating recession fears amid lower growth prospects have diminished the DXY’s appeal.
• Oil prices are hoping for an extension of recovery after surpassing Friday’s high.

The USD/CAD pair is facing barricades around the round-level resistance of 1.2900 as expectations of lower growth forecasts in the US economy have weakened the US dollar index (DXY). The major has traded in a narrow range of 1.2874-1.2903 in the Asian session and a similar performance is expected in the European session.

The downbeat US Institute of Supply Management (ISM) has bolstered the odds of a recession in the US economy. The US ISM delivered a vulnerable performance on all fronts: Manufacturing PMI, New Orders Index, and Employment Index.

In comparison with the Western leaders, the Federal Reserve (Fed) has been accelerating interest rates without much hesitation as firmer growth prospects and tight labor market were supporting the Fed policymakers to sound extremely hawkish. Now, the downbeat US ISM economic data has raised questions over the growth prospects. Apart from that, the consensus for the US Nonfarm Payrolls (NFP) has been cut significantly to 250k from the prior print of 390k. Therefore, higher policy rates have also started impacting the job market.

In the current scenario, an expectation of a consecutive 75 basis point (bps) interest rate hike is not lucrative. Therefore, bracing for a 50 bps or 25 bps rate hike would be justified.

On the loonie front, the spotlight is on the employment data, which will release on Friday. A preliminary estimate for the Unemployment Rate is 5.2% vs. the prior print of 5.1%. Meanwhile, the oil prices are extending their recovery as the asset is attempting to cross Friday’s high at $107.65. An occurrence of the same will drive the oil prices towards the critical hurdle of $109.00.