USD/CAD rebound approaches 1.3600 as Oil retreats, US Dollar licks its wounds with eyes on Fed

• USD/CAD picks up bids to refresh intraday high, snaps two-day downtrend.
• Oil price eases on mixed OPEC updates, fears surrounding China and surprise inventory build.
• US Dollar consolidates inflation-led losses ahead of FOMC meeting.
• All eyes on Fed’s pivot and economic projections amid calls for slower rate hike.

USD/CAD renews its intraday top near 1.3575 as it consolidates the recent losses near the weekly low amid early Wednesday morning in Europe. In doing so, the Loonie pair prints the first intraday gains in three days while reversing the previous day’s heavy declines amid a sluggish session ahead of the US Federal Reserve’s (Fed) monetary policy meeting.

In addition to the pre-Fed consolidation, the recently downbeat prices of WTI Crude Oil, Canada’s key export item, also weigh on the Loonie pair. That said, the mixed oil demand forecasts from the Organization of the Petroleum Exporting Countries (OPEC) and a surprise increase in the American Petroleum Institute’s (API) weekly inventory for the week ended on December 09, to 7.819M versus -6.289M prior, also weighed on the black gold prices. With this, the energy benchmark drops towards $75.00 with 0.35% intraday losses at the latest, the first in four days.

Also read: WTI stays defensive above $75.00 on mixed OPEC oil demand forecasts, API inventory build

Additionally, the risk-negative catalysts surrounding China also seem to restrict the market’s latest moves and allow the USD/CAD pair to lick its wounds. The International Monetary Fund (IMF) Managing Director Kristalina Georgieva was spotted expecting slower economic growth for China due to the latest jump in the daily Covid cases. Additionally, Bloomberg came out with the news suggesting that the Chinese leaders delayed the economic policy meeting due to the COVID-19 problems. On the same line, the Asian Development Bank (ADB) cut China's 2023 economic growth forecast to 4.3% from the 4.5% estimate in September.

It’s worth noting that the hopes of easy rate increases from the Fed, especially after the previous day’s downbeat US inflation readings, keep the USD/CAD bears hopeful. The US Consumer Price Index (CPI) dropped to 7.1% YoY in November versus the 7.3% expected and 7.7% prior. Further, the CPI ex Food & Energy, known as the Core CPI, also declined to 6.0% YoY during the stated month compared to 6.1% market forecasts and 6.3% previous readings. “Traders of futures tied to the Federal Reserve’s policy rate boosted bets Tuesday that the U.S. central bank will notch down its interest-rate hike pace further early next year, after a government report showed inflation eased sharply in November,” said Reuters following the data.

Against this backdrop, the S&P 500 Futures print a three-day uptrend near 4,065, up 0.25% intraday, whereas the US 10-year Treasury yields decline one basis point (bps) to 3.49%, after snapping the three-day downtrend.

Looking forward, Canadian Manufacturing Sales for October, expected 2.0% versus 0.0% prior, may entertain the USD/CAD pair traders ahead of the key Federal Open Market Committee (FOMC) monetary policy meeting. If the Fed disappoints markets by diverging from broadly dovish expectations, the US Dollar could recover the latest losses.

Also read: Fed December Preview: Will US Dollar selloff continue?

Technical analysis

Although the 21-day Exponential Moving Average (EMA) restricts short-term USD/CAD downside near 1.3530, buyers need to cross a seven-week-old resistance line near 1.3650 by the press time, to retake control.