USD/CAD retreats from two-year top towards 1.3750 as oil bears, DXY portray cautious mood

• USD/CAD extends pullback from 29-month high, sidelined of late.
• Oil prices remain lackluster as economic fears join firmer yields, upbeat DXY.
• BOE’s Bailey, IMF’s growth forecast offer a major challenge to buyer’s return.
• Fed Minutes, risk catalysts are important for fresh impulse as bulls keep control.

USD/CAD snaps a two-day uptrend as it steps back from the two-year high while declining to 1.3790 during Wednesday’s Asian session. The Loonie pair’s latest weakness could be linked to the market’s consolidation ahead of this week’s key events, as well as a pause in the previously falling prices of Canada’s main export item WTI crude oil.

That said, the US Dollar Index (DXY) tracked the Treasury yields while renewing the weekly top earlier on Tuesday before ending the day with mild gains. The reason could be linked to the market’s consolidation ahead of today’s Federal Open Market Committee (FOMC) Meeting Minutes.

Even so, comments from Bank of England (BOE) Governor Andrew Bailey amplified the risk-off mood by citing the Financial Policy Committee’s (FPC) decision to intervene in the financial market after noting market volatility surpassed the bank stress test. It should be noted that the BOE expanded their gilt buying program to include inflation-linked gilts for the remainder of their intervention (due to finish on 14 October, UK time).

WTI crude oil might have sensed Saudi Arabia’s rejection of the US request of delaying the output cuts as a positive catalyst even if the International Monetary Fund (IMF) lowered the global economic growth forecast for 2023 to 2.7% from 2.9% estimated in July.

Against this backdrop, Wall Street benchmarks closed mixed after a volatile day while the US 10-year Treasury yields ended Tuesday with mild gains around the multi-month high marked the previous day.

It should be noted that the USD/CAD prices may witness lackluster moves ahead of today’s key Fed Minutes as the Fedspeak has recently been mixed but the market bets on November’s rate hike keep favoring the 75 bps move. Even so, the pair buyers are likely to keep the reins amid the market’s rush for risk safety and the hawkish Fed.

Technical analysis

The area comprising multiple tops surrounding 1.3835, followed by April 2020 low near 1.3850, appears challenging the USD/CAD bulls.