USD/CAD extends recovery above 1.3370 as spotlight shifts to US Inflation

• USD/CAD has stretched its recovery move above 1.3370 as anxiety soars ahead of US CPI data.
• A surprise jump in US inflation will compel Fed Powell to continue the policy tightening spell in March.
• Canada’s weak employment cost index is going to delight the BoC.

The USD/CAD pair has rebounded firmly after building a cushion of around 1.3340 in the Tokyo session. The Loonie asset has extended its recovery firmly above 1.3370 as investors are getting anxious ahead of the release of the United States Consumer Price Index (CPI), therefore, pouring funds into the safe-haven assets due to the weak appetite of investors for risky assets.

The US Dollar Index (DXY) has refreshed its three-day high at 103.39 as the risk-appetite theme has weakened further. Meanwhile disappointed earnings by the US equities and geopolitical events in which Pentagon has shot down two unidentified flying objects in the past week have impacted the S&P500 futures.

Soaring expectations for a jump in the US inflation data, scheduled for Tuesday, is dampening the demand for the US government bonds, which has pushed the 10-year US Treasury yields to 3.74%.

The strong US labor market despite squeezing activities and higher interest rates by the Federal Reserve (Fed) is bolstering the expectations of a surprise upside in the inflation report. An occurrence of the same might force Fed chair Jerome Powell to continue the policy tightening spell to its March monetary policy. Also, Philadelphia Fed President Patrick Harker sees interest rates above 5% this year.

On the Loonie front, an upbeat employment report has conveyed that Canadian inflation could attain more stubbornness ahead. The economy added 150K in January, higher than the consensus of 15K and the former release of the 69.2K. The Unemployment Rate remained stable at 5%.

The catalyst that was music to the ears of the Bank of Canada (BoC) was the decline in the Average Hourly Earnings data, which dropped to 4.5% from the prior release of 4.7%. A decline in the labor cost index will squeeze consumer spending from the market and will trim inflationary pressures ahead.

The oil price has dropped firmly after facing barricades of around $80.00 after a power-pack move. The upside looks favored as Russia has announced a cut in oil production by 5% in retaliation aging price cap levied by 57 to prevent funding for ongoing war against Ukraine. It is worth noting that Canada is a leading exporter of oil to the United States and higher oil prices might strengthen the Canadian Dollar.