USD/CAD traces steady oil above 1.3100, focus on US Retail Sales, Michigan CSI

• USD/CAD remains sidelined after rising to the highest levels since November 2020.
• Oil prices await China data, active markets for to extend corrective pullback from five-month low.
• Market sentiment improves on easing hawkish bias on Fed’s next move, mixed Fedspeak, data.
• G20 updates, US data will be important, Fedspeak shouldn’t be missed for clear directions.

USD/CAD treads water around 1.3120, after rising to a 20-month high, as traders await key data/events during Friday’s Asian session. The Loonie pair’s latest inaction could also be linked to the sluggish prices of WTI crude oil, Canada’s main export earner.

That said, WTI crude oil struggles to extend the previous day’s rebound from the lowest levels since February, down 0.45% around $93.45 by the press time.

Risk appetite improves amid receding fears of recession and mixed concerns surrounding the Fed’s aggressive rate hikes. On the same line could be the Fedspeak and US data that trigged USD/CAD pullback from the multi-month high.

St. Louis Federal Reserve President James Bullard and Federal Reserve Governor Christopher Waller were among the key Fed speakers who tried to talk down the odds of higher rates. That said, Fed’s Bullard said, "So far, we've framed this mostly as 50 versus 75 at this meeting." On the same line, Fed’s Waller mentioned that markets may have gotten ahead of themselves by pricing a 100 basis points rate hike in July, as reported by Reuters. It should be noted that the Fed policymakers head to a blackout period from this weekend ahead of late July Federal Open Market Committee (FOMC).

Talking about data, the US Bureau of Labor Statistics mentioned that the Producer Price Index (PPI) for final demand in the US climbed to 11.3% on a yearly basis in June from 10.9% in May. This print surpassed the market expectation of 10.7%. Additionally, there were 244,000 Initial Jobless Claims in the week ending July 9 versus the previous week's print of 235,000 and market expectation of 235,000. The Weekly Jobless Claims were the highest in five months.

On a different page, the receding difference between the 2-year and the 10-year US Treasury yields also probed the USD/CAD bulls the previous day. That said, the US 10-year Treasury yields ended Thursday around 2.95%, up 0.95% intraday, whereas the 2-year bond coupon dropped 0.75% to 3.12% at the latest. With this, the difference between the near-term and the longer-term bond coupons declined to 17 basis points (bps) versus 23 bps inversion on Tuesday.

Looking forward, US Retail Sales, expected 0.8% MoM in June from -0.3% marked in May, will precede preliminary readings of the Michigan Consumer Sentiment Index (CSI) for July, expected 49.9 versus 50.0 prior, to direct short-term USD/CAD moves. However, Fedspeak will be more important for the pair traders to watch.

Technical analysis

A successful daily break of the resistance-turned-support from May, around 1.3085 by the press time, keeps USD/CAD bulls hopeful to refresh the multi-month high, currently around 1.3225.