USD/CAD surrenders 1.3700 as USD Index corrects and oil price advances

• USD/CAD has slipped further below 1.3700 amid an extended correction in the USD Index.
• Oil price has scaled above $69.00 amid the revised 2023 China GDP forecast to 6.0% from 5.5% previously estimated.
• Going forward, Canada’s Inflation data will be of utmost importance.

The USD/CAD pair has slipped below the round-level support of 1.3700 in the Asian session. The Loonie asset is following the footprints of the US Dollar Index (DXY) and has witnessed selling pressure. The downside move in the major is also backed by an extension in the oil price on the upside.

S&P500 futures have recovered nominal losses generated in the early Asian session, portraying further improvement in the risk appetite of the market participants. The US Dollar Index (DXY) has slipped below the crucial support of 104.20 and is expected to remain on the tenterhooks as the Federal Reserve (Fed) is expected to sound less hawkish in its monetary policy meeting next week.

Meanwhile, US government bonds are showing confusing performance amid a lack of clarity over the Fed’s monetary policy outlook. The 10-year US Treasury yields are hovering around 3.57%.

Going forward, the Canadian Dollar is likely to dance to the tunes of Canada’s inflation data, which will release on Tuesday. As per the consensus, the headline Consumer Price Index (CPI) is expected to accelerate by 0.4%, lower than the former release of 0.5%. This might drag the annual headline CPI further to 5.5%. Also, the annual core CPI is expected to trim to 4.6% from the former release of 5.0%.

It seems that Canadian inflation is declining according to the roadmap designed by the Bank of Canada (BoC) to bring down stubborn inflation and achieve price stability.

Investors should be aware of the fact that BoC Governor Tiff Macklem has already held interest rates steady at 4.5%. BoC Macklem considers the current monetary policy as restrictive enough to scale down price pressures.

On the oil front, oil price has extended its recovery above $69.00 as investment banking firm, Goldman Sachs, has revised 2023 China’s GDP projections to 6% from 5.5% anticipated earlier. It is worth noting that Canada is a leading exporter of oil to the United States and higher oil prices would support the Canadian Dollar.