USD/CAD rebounds prods 1.3400 amid firmer USD, downbeat Oil price, Canada inflation, BoC’s Macklem eyed

• USD/CAD grinds higher after two-day rebound from the lowest levels since mid-February.
• US Dollar cheers hawkish Fed bets, upbeat yields to extend previous week’s recovery.
• Firmer greenback, fears of economic recovery and anxiety ahead of key China data weigh the Oil price.
• Canada CPI, BoC Governor Macklem’s speech eyed for clear directions.

USD/CAD bulls take a breather around the 1.3400 round figure as they await the key Canada inflation data and a speech from Bank of Canada (BoC) Governor Tiff Macklem. That said, the Loonie pair rose in the last two consecutive days while bouncing off the lowest levels since mid-February.

While tracing the clues, the US Dollar’s broad recovery on the back of firmer US Treasury bond yield and hawkish Fed bets joins the fall in the WTI crude Oil price, Canada’s main export item, could be lined as the key catalysts.

On Monday, the NY Empire State Manufacturing Index jumped to 10.8 for April while snapping the four-month downtrend, as well marking the highest level since July last year. Further, the US National Association of Home Builders (NAHB) housing market index also rose for the fourth consecutive month in April to 45, versus 44 expected and prior reading.

Further, Richmond Fed President Thomas Barkin said on Monday that he wants to see more evidence of inflation settling back to target. The policymaker also added that he feels reassured by what he is seeing in the banking sector.

US Dollar Index (DXY) stretched Friday’s rebound from a one-year low as upbeat US data and hawkish Fed talks joined the increasing odds of another Fed rate hike in May, as well as a reduction in the market’s bets suggesting a rate cut in later 2023. The same could be true for the US Treasury bond yields as the US 10-year and two-year bod coupons printed three-day uptrend to 3.60% and 4.20% respectively.

On the other hand, WTI Crude Oil dropped around 2.0% to the lowest levels in a week, pressured near $80.85 by the press time, as hawkish Fed bets and a firmer US Dollar challenges energy demand. Also exerting downside pressure on the black gold could be the latest doubt on China’s economic recovery.

Also read: WTI falls over 2% on fears of Fed’s tightening plan, broad US Dollar strength

Looking forward, Canada’s Consumer Price Index (CPI) for March and BoC CPI for the said month will be important to watch for clear directions as BoC Governor Tiff Macklem showed readiness to renew rate hike trajectory if needed. That said, BoC Governor Macklem is also up for a speech later in the day and will be eyed closely for fresh impetus. Additionally, the US Housing Starts and Building Permits for March will also be important to watch.

Technical analysis

200-DMA and a one-month-old descending resistance line, respectively near 1.3405 and 1.3415, restricts short-term USD/CAD upside. However, recently firmer oscillators favor the Loonie pair bulls.