USD/CAD licks BOC-led wounds below 1.3000, ignores oil’s rebound on hawkish Fed bets

• USD/CAD pares the biggest daily fall in a week as US dollar cheers hawkish Fed bets.
• WTI crude oil prices rebound amid mixed concerns surrounding China, sluggish session.
• BOC’s larger-than-expected rate hike triggered chatters over Fed’s 100 bps rate hike.
• US PPI, second-tier Canada data will be important for fresh impulse.

USD/CAD remains sidelined at around 1.2980. consolidating the previous day’s losses heading into Thursday’s European session. The Loonie pair slumped the most in over a week after the Bank of Canada’s (BOC) rate hike. However, hawkish expectations from the US Federal Reserve (Fed), mainly inspired by the US inflation data, appeared to have fuelled the quote afterward.

Bank of Canada (BOC) hiked its policy rate by 100 basis points (bps) to 2.5% in June, compared to the market expectation for a rate increase of 75 bps. “With the economy clearly in excess demand, inflation high and broadening, and more businesses and consumers expecting high inflation to persist for longer, the Governing Council decided to front-load the path to higher interest rates”, said BOC Statement. After the BOC drama, the USD/CAD dropped 80 pips before bouncing off 1.2936.

It’s worth noting that the US Consumer Price Index (CPI) for June jumped to the highest level in 40 years to 9.1% YoY versus 8.8% expected and 8.6% prior. The Core CPI, which excludes volatile food and energy prices, eased to 5.9% from 6% prior but crossed analysts' forecast of 5.8%.

The pair’s rebound gained momentum afterward amid escalating bets on the hawkish Fed move. The multi-year high US inflation fuelled the market’s bets for hawkish Fed actions in July. Reuters cites CME data to mention the USD/CAD bulls while saying, “They are now pricing in a nearly 80% probability of a full percentage-point rise at the coming meeting, according to an analysis of the contracts by CME Group,” said Reuters. The hawkish Fedbets also gain support from the Fed policymakers as San Francisco Federal Reserve Bank President Mary Daly said that her most likely posture is a 75bp hike in July but a 100bp is possible, as reported by the New York Times. Before that, Richmond Federal Reserve President Thomas Barkin conveyed his support for higher rates in the last meeting while Cleveland Federal Reserve President Loretta Mester also said, “The data on CPI does not suggest a rate hike in July any smaller than that in June.”

Against this backdrop, the US 10-year Treasury yields rose three basis points (bps) to 2.95% at the latest while the S&P 500 Futures drop 0.10% to portray the risk-off mood and favor the US dollar.

Looking forward, US Producer Price Index for June and the weekly Jobless Claims will decorate the calendar and entertain USD/CAD traders. However, major attention will be given to the Fedspeak and risk catalysts like chatters surrounding recession. Also important will be Canada’s monthly Manufacturing Sales and prices of WTI crude oil, up 0.30% around $94.50 by the press time.

Technical analysis

Unless crossing a seven-day-old resistance line, at 1.3055 by the press time, USD/CAD bulls could stay cautious. Alternatively, pullback moves remain elusive beyond an upward sloping support line from June 08, around 1.2960 at the latest.