USD/CAD struggles to regain 1.2900 on softer oil, firmer USD ahead of US inflation

• USD/CAD retreats from intraday high, remains unchanged for the day.
• Oil prices fail to justify Russian pipeline halt, demand hopes amid recession fears.
• US dollar tracks yields, hawkish Fed bets ahead of the key US CPI for July.

USD/CAD steps back from the intraday high of 1.2895 as bulls and bears jostle amid mixed catalysts and the market’s anxiety before important US data on Wednesday. Even so, softer prices of Canada’s main export item, WTI crude oil, join the recently firmer US Dollar Index (DXY) to keep buyers hopeful.

WTI crude oil remains pressured around $89.60, down 0.35% intraday, as fears of recession supersede supply-crunch concerns. Chatters surrounding an economic slowdown in the Eurozone escalated after Russia halted oil supplies. “Russia reportedly suspended oil flows via the southern leg of the Druzhba pipeline, amid transit payment issues,” said Reuters. In doing so, the black gold ignores optimism conveyed by the US oil refiners and pipeline companies, per Reuters. “US oil refiners and pipeline operators expect energy consumption to be strong for the second half of 2022, even though analysts and industry watchers have worried that demand could falter if the global economy enters a recession or high fuel prices deter travelers,” said the news.

Elsewhere, the DXY seesaws around 106.30 after bouncing off 105.95 the previous day. In doing so, the greenback’s gauge versus the six major currencies tracks the firmer US Treasury yields while also benefiting from the market’s rush for risk safety ahead of important inflation data.

The risk-off mood could be witnessed in Wall Street’s downbeat performance, as well as a rebound in the US 10-year Treasury yields to 2.79%. Further, S&P 500 Futures also print mild losses at around 4,120 by the press time.

Looking forward, China’s Consumer Price Index (CPI) and Producer Price Index (PPI) data for July will offer immediate directions to the USD/CAD traders. However, major attention will be given to the US CPI, expected to ease to 8.7% from 9.1% on YoY, as well as the CPI ex Food & Energy which is likely to rise from 5.9% to 6.1%, amid hawkish Fedspeak and chatters surrounding recession.

Technical analysis

USD/CAD portrays the failure to keep the bounce off the 100-DMA level surrounding 1.2800, marked during the last week. Given the sluggish MACD and the steady RSI supporting the recent grinding towards the south, the pair is likely to remain softer.