USD/CAD consolidates gains above 1.2900 as DXY retreat, oil price rebound ahead of US inflation

• USD/CAD remains mildly offered while paring the biggest daily gains in three weeks.
• US dollar retreats amid sluggish session, oil prices cheer firmer China trade numbers, easing fears surrounding Taiwan.
• Canada jobs report failed to favor bulls but US NFP propelled hawkish Fed bets.
• US inflation will be important data for the week, risk catalysts may entertain intraday traders.

USD/CAD renews intraday low near 1.2930 as the bulls take a breather after posting the biggest run-up in three weeks heading into Monday’s European session. In doing so, the Loonie pair also justifies the rebound in oil prices, Canada’s main export item.

That said, the WTI crude oil prices pick up bids around $89.00 while extending Friday’s corrective pullback from a six-month low.

The black gold joins the Antipodeans to cheer the US dollar pullback as traders await the key US Consumer Price Index (CPI) data for July, up for publishing this Wednesday.

US Dollar Index (DXY) retreats from a one-week high, down 0.05% around 106.50 by the press time, as traders seek more clues to extend Friday’s heavy run-up. Also exerting downside pressure on the greenback gauge is the receding fears over the US-China tussles over Taiwan.

Recently, Reuters came out with the news suggesting that China is up for ‘regular’ military drills east of the Taiwan Strait median line. That said, the dragon nation’s Foreign Ministry announced on Friday that they will sanction US House of Representative Speaker Nancy Pelosi over the Taiwan visit. On the other hand, Taiwan's Defense Ministry reported 66 Chinese aircraft conducting activities in the Taiwan Strait as of 5 pm local time on Sunday. Further, US Secretary of State Anthony Blinken mentioned that China's provocative actions were a significant escalation.

Elsewhere, the US 10-year Treasury yields ease back to near 2.82% after rallying 14 basis points (bps) to 2.83% the previous day. Further, S&P 500 Futures print mild losses and the Asia-Pacific shares also remain pressured.

It’s worth noting that the USD/CAD rallied on Friday after the US jobs report impressed Fed hawks while the Canadian employment data for July couldn’t justify the Bank of Canada’s (BOC) optimism.

On Friday, a firmer US employment report for July underpinned hawkish Fed bets and recalled the US dollar bulls, allowing the US Dollar Index (DXY) to snap a two-week downtrend. That said, the headline Nonfarm Payrolls (NFP) rose to 528K versus 250K expected and 398K upwardly revised prior. Further, the Unemployment Rate also inched lower to 3.5% compared to 3.6% expected and previous readings.

On the other hand, Canada’s headline Net Change in Employment dropped to -30.6K versus 20K market forecasts and -43.2K previous readout. However, the Unemployment Rate reprinted the 4.9% compared to expectations of rising to 5.0%.

Looking forward, USD/CAD traders should pay attention to the moves of the WTI crude oil, as well as risk catalysts, for fresh impulse amid a light calendar. However, Wednesday’s US inflation data will be important to watch for clear directions.

Technical analysis

Despite the latest pullback, USD/CAD holds onto the previous day’s break of the 21-DMA surrounding 1.2910, the first in three weeks, which in turn keeps buyers hopeful of challenging multiple tops marked since May around 1.3080.