USD/CAD licks its wounds at six-week low above 1.3400 despite firmer Oil price

• USD/CAD picks up bids to pare intraday losses at 1.5-month low, prods six-day downtrend.
• US Dollar pares recent fall as mixed concerns about inflation, geopolitics weigh on sentiment amid sluggish session.
• Headlines from Russia, China challenge previous risk-on mood even as Fed bets ease.
• Canada Building Permits, US Factory Orders eyed for fresh impulse.

USD/CAD reverses intraday losses as it grinds higher past 1.3400 heading into Tuesday’s European session, near 1.3440 by the press time.

With this, the Loonie pair ignores firmer prices of the WTI crude oil, Canada’s key export item, while pausing a six-day downward trajectory near the lowest levels since mid-February.

WTI crude oil rises 0.50% intraday to $80.85 at the latest. It’s worth noting that the black gold posted the biggest daily jump in 11 months the previous day after the Organization of the Petroleum Exporting Countries (OPEC) and its allies led by Russia, known as OPEC+, announced a surprise output cut.

On the other hand, US Dollar Index (DXY) prints mild gains around 102.20 after falling the most since March 22 on Monday. The DXY’s latest rebound could be linked to the corrective bounce in the US Treasury bond yield. That said, the US 10-year and two-year Treasury bond yields lick their wounds around 3.42% and 3.98% after printing a four-day and two-day downtrend in that order.

It’s worth noting that the market’s cautious mood amid a light calendar and anxiety ahead of the top-tier US and Canadian jobs report joins the geopolitical risks emanating from China and Russia to underpin the US Dollar’s haven demand.

Russian Foreign Minister Sergei Lavrov raised fears of escalating Moscow-Brussels tussle by saying, “The European Union (EU) has "lost" Russia.” The policymaker also added that Moscow will deal with Europe in a tough fashion if need be. Furthermore, the US-China tension is also on the table as Beijing keeps reiterating its dislike for the US-Taiwan ties but Washington seems to ignore it.

Additionally challenging the risk profile are the mixed concerns about the OPEC+ move’s impact on inflation and the Federal Reserve’s (Fed) next action as hawkish bets recede. Late on Monday, US President Joe Biden shrugged off the OPEC+ move and said that it is not as bad as you think. However, US Federal Reserve Board Governor Lisa Cook, as well as US Treasury Secretary Janet Yellen flagged fears of higher inflation and challenges to global growth. While portraying the market’s bets on the Fed, the CME’s FedWatch Tool marks nearly 42% market bets on the Fed’s 0.25% rate hike in May, versus 52% flashed on Friday.

Talking about the data, the US ISM Manufacturing PMI dropped to the lowest levels since May 2020 in March, to 46.3 versus 47.5 expected and 47.7 prior. On the other hand, the Bank of Canada’s (BoC) latest quarterly Business Outlook Survey published on Monday said about half of the polled firms expect Canada to go into a mild recession over the next year, down from roughly two-thirds in the previous survey, per Reuters.

Looking forward, USD/CAD may consolidate recent losses amid sluggish markets and a light calendar. However, no major action is expected ahead of Friday’s US and Canadian employment data.

Technical analysis

Nearly oversold RSI (14) could join the 200-DMA level of 1.3380 to restrict short-term USD/CAD downside. Corrective pullback, however, needs validation from the 100-DMA hurdle of 1.3525.