USD/CAD stay pressured towards 1.3000 amid firmer oil, USD weakness ahead of US inflation

• USD/CAD holds lower ground after witnessing the first weekly loss in four.
• Oil prices remain firmer amid geopolitical fears, softer US dollar.
• Hopes of easing inflation join stimulus from major economies to favor cautious optimism.
• After BOC rate hike, US CPI will be in focus for clear directions.

USD/CAD remains on the back foot as bears flirt with the 1.3025-30 levels during Monday’s Asian session. In doing so, the Loonie pair prints a four-day downtrend after snapping the three-week bull-run in the last.

The quote’s run-up could be linked to the firmer prices of Canada’s key export item, WTI crude oil, as well as the broad US dollar weakness amid the market’s hopes of witnessing easy inflation moving forward. Also keeping the bears hopeful is the Bank of Canada’s (BOC) readiness for more rate hikes, despite increasing the benchmark rates by 75 basis points (bps) during the last week.

WTI crude oil remains firmer for the third consecutive day around $86.15, after bouncing off the lowest levels since late January, amid geopolitical fears emanating from the Russia-Ukraine tension and the US-China tussles. The recent Western efforts to cap Russian oil prices and the US-Taiwan ties are the main catalysts, not to forget Moscow’s retreat from some of the Ukrainian areas, in these matters.

On the other hand, the US Dollar Index (DXY) reversed from the 20-year high and allowed USD/CAD sellers to remain hopeful, despite hawkish Fedspeak. That said, the greenback gauge ended the last week at around 108.60 despite witnessing comments favoring more rate hikes from the Fed from the key Fed policymakers.

Among them, Federal Reserve Governor Christopher Waller was the prominent one as he said on Friday that he supports another significant hike in two weeks. On the same line was Kansas City Fed President Esther George who said, as reported by Reuters, “Case for continuing to remove policy accommodation is clear cut.” Furthermore, Cleveland Federal Reserve Bank President Loretta Mester said, “One inflation report is insufficient to alter one's outlook.” The policymaker also stated that he sees policy rates rising slightly above 4% by early 2023.

It should be noted that US Treasury Secretary Janet Yellen mentioned that, during the CNN interview on Sunday, “Fed is going to need skill and luck to bring inflation down while maintaining labor market strength.” The policymaker also mentioned that US consumers could experience a spike in gas prices in winter when the European Union significantly cuts back on buying Russian oil.

Market players seem to have gained confidence that the global central bankers will be able to tame the price pressure. In doing so, they manage to accept the hawkish comments/actions of the European Central Bank (ECB), the Bank of Canada (BOC) and the US Federal Reserve (Fed).

However, the US Consumer Price Index (CPI) and Retail Sales for August, as well as the preliminary readings of the Michigan Consumer Sentiment Index for September, will be crucial as markets await the Fed’s next move.

Technical analysis

A clear downside break of the 21-DMA and the one-month-old ascending trend line, respectively around 1.3040 and 1.3100, keeps USD/CAD bears hopeful of breaking the 1.3000 threshold.