USD/CAD aims to recapture 1.3500 as USD Index rebounds amid US debt-ceiling issues

The USD/CAD pair is looking to reclaim the psychological resistance of 1.3500 in the early London session. The Loonie asset has rebounded after a mild correction to near 1.3463 amid the recovery move by the US Dollar Index (DXY). The USD Index has refreshed its day’s high at 102.68 as US debt-ceiling issues have deepened further.

S&P500 futures generated moderate gains in the Asian session after a bearish Tuesday. The market mood seems mixed as risk-perceived currencies are facing severe pressure. The postponement of US debt ceiling issues till the weekend has weighed on Treasury yields. The yields offered on 10-year US Treasury bonds have slipped to near 3.52%.

The US Treasury is worried as each passing day is pushing the US economy towards recession. A default in obligated payments by the US Treasury will result in the loss of millions of jobs and Gross Domestic Product (GDP) figures.

On the Canadian Dollar front, a rebound in inflationary figures (April) has renewed fears of further interest rate hikes from the Bank of Canada (BoC). Annual headline Consumer Price Index (CPI) landed at 4.4%, higher than the consensus of 4.1% and the former release of 4.3%. While the core inflation landed between the estimates of 3.9% and the prior release of 4.3% at 4.1%. Also, monthly headline CPI jumped to 0.7% vs. the estimates of 0.4%.

The oil price has dropped sharply as investors are worried about deepening fears of a US recession. Going forward, the oil inventory data by the US Energy Information Administration (EIA) will be keenly watched. It is worth noting that Canada is the leading exporter of oil to the US and lower oil prices impact the Canadian Dollar.