USD/CAD grinds higher past 1.3600 as sluggish Oil price jostles with banking, US default concerns

• USD/CAD seesaws around the highest level in a month after rising the most in seven weeks.
• Markets consolidate the previous day’s moves ahead of the key US data amid central banks’ efforts to restore confidence.
• Worrisome earnings from First Republic Bank, indecision over US debt ceiling underpin Loonie pair’s latest run-up.
• WTI licks its wounds ahead of weekly Oil inventory data.

USD/CAD struggles to extend the biggest daily gains in seven weeks as it makes rounds to 1.3620-30 during early Wednesday. In doing so, the Loonie pair seems to take clues from the latest pause in the Oil price downside, Canada’s main export, as well as the market’s consolidation ahead of the key US Durable Goods Orders for March. However, fresh fears surrounding the bank fallouts and the US debt ceiling expiration keep the Loonie pair buyers hopeful, especially amid the Bank of Canada’s (BoC) comparatively dovish bias than the Federal Reserve (Fed).

The Loonie pair jumped to the highest levels in one month the previous day as the US Dollar cheered the broad risk-off mood, as well as mostly upbeat US data. That said, headlines surrounding the First Republic Bank (FRB) and the US debt ceiling discussion propelled the risk aversion the previous day, which in turn underpinned the US Dollar’s haven demand and weighed on the WTI price.

It’s worth noting that the WTI crude oil remains pressured around $77.00 after falling to the lowest levels in three weeks on Tuesday. The black gold’s latest pause in further downside could be linked to the sluggish markets and cautious mood before the key US data and weekly Oil inventories from the US Energy Information Administration (EIA).

Talking about the risks, Wall Street closed in the red while the US Treasury bond yields remained downbeat as the First Republic Bank’s (FRB) disappointing earnings reports joined the executives’ resistance in taking questions and no earnings guidance to trigger a fresh wave of banking jitters. Even so, the major central banks tried to restore market confidence by curtailing the US Dollar operations initiated during the first wave of the banking crisis. “The world's top central banks are cutting the frequency of their dollar liquidity operations with the U.S. Federal Reserve from May, sending the clearest signal yet that last month's financial market volatility is essentially over,” said Reuters.

On the other hand, fears of US debt ceiling expiration also weigh on the risk appetite as the current limit expires in June. That said, US Treasury Secretary Janet Yellen warned that failure by Congress to raise the government's debt ceiling–and the resulting default–would trigger an "economic catastrophe" that would send interest rates higher for years to come, per Reuters.

It’s worth noting that mostly upbeat US data also favored the USD/CAD buyers. On Tuesday, US Conference Board's Consumer Confidence Index edged lower to 101.3 for April, versus 104.0 prior. Additional details of the publication stated that the Present Situation Index ticked up to 151.1 during the said month from 148.9 prior whereas the Consumer Expectations Index dropped to 68.1 from 74 previous readings. Further, the one-year consumer inflation expectations eased to 6.2% in April from 6.3% in March. In a different release, the US New Home Sales rose to 0.683M MoM in March versus 0.634 expected and 0.623M revised prior while the S&P/Case-Shiller Home Price Indices and Housing Price Index both rose past market forecast to 0.4% and 0.5% respectively for February.

Technical analysis

A clear upside break of the 50-DMA hurdle, now immediate support near 1.3575, joins bullish MACD signals to direct USD/CAD buyers towards a downward-sloping resistance line from early March, close to 1.3675 at the latest.