USD/CAD retreats from 1.3500 as OPEC’s surprise cut drives oil price, US PMI eyed

• USD/CAD has failed to get accepted above 1.3500 as the higher oil price has strengthened the Canadian Dollar.
• The USD Index has scaled above 102.80 as higher oil prices would fuel persistent United States inflation.
• Canada’s upbeat January GDP data has trimmed the chances of reporting an overall quarterly contraction ahead.

The USD/CAD has retreated from 1.3520 after a rebound attempt followed by a gap-down opening from 1.3488 in the early Tokyo session. The Loonie asset has continued its downside journey as the oil price has soared dramatically after the announcement of a surprise cut in oil production by OPEC+. The oil cartel has decided to cut the oil production further by 1.16 million barrels each day, which has pushed the overall pledge of oil cut to 3.66 million bpd.

It is worth noting that Canada is the leading exporter of oil to the United States and significantly higher oil prices have infused fresh blood into the Canadian Dollar.

The Canadian Dollar remained in action on Friday after the release of upbeat monthly Gross Domestic Product (GDP) (Jan) data. The economic data landed at 0.5%, higher than the estimates of 0.3%. The GDP data was contracted by 0.1% in December and an optimist start of 2023 has trimmed chances of reporting an overall contraction ahead.

Meanwhile, S&P500 futures have recovered some of their losses posted in Asia, portraying recovery in the risk appetite of the market participants. It looks like investors have started digesting the consequences of higher oil prices. The US Dollar Index (DXY) has scaled above 102.80 as higher oil prices would fuel persistent United States inflation.

Going forward, the US ISM Manufacturing PMI data will be keenly watched. According to the consensus, the Manufacturing PMI is expected to decline marginally to 47.5 from the former release of 47.7. Investors should be aware that the US Manufacturing PMI has remained below 50.0 consecutively in the past four months.

From the US Manufacturing PMI gamut, New Orders Index would hog the limelight as it provides cues about the manufacturing outlook. The forward demand for the manufacturing sector is expected to contract significantly to 44.6 vs. the prior release of 47.00.