USD/CAD copies Oil’s inaction above 1.3300 as US inflation data loom

USD/CAD portrays the market’s cautious mood as traders keep their eyes on the US Consumer Price Index (CPI) for January during early Tuesday. In doing so, the Loonie pair holds lower grounds near 1.3330 following a two-day downtrend.

The quote’s latest weakness could be linked to the US Dollar’s failure to defend the previous weekly gains amid downbeat US Treasury bond yields. However, the softer price of Oil, Canada’s key export, joins the hawkish Federal Reserve (Fed) comments to tease USD/CAD bulls.

WTI crude oil remains depressed at around $79.50 amid the fears of more releases of the US Strategic Petroleum Reserves (SPR). With this, the black gold ignores the previous chatters suggesting an output crunch due to Russia’s threat of cutting production and the hopes of more energy demand, as conveyed by Organization of the Petroleum Exporting Countries (OPEC) Secretary-General Haitham Al Ghais.

Elsewhere, Fed Governor Michelle Bowman said that the Federal Reserve would need to continue to raise interest rates to get them to a level high enough to bring inflation back down to the central bank's target rate, per Reuters. Before him, Philadelphia Federal Reserve President Patrick Harker pushed back the chatters of a Fed rate cut during 2023. However, the policymaker mentioned, “Fed not likely to cut this year but may be able to in 2024 if inflation starts ebbing.”

The easing of the US inflation expectations from the multi-day high seemed to have weighed on the US Treasury bond yields and the US Dollar of late. That said, the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) eased from monthly highs to 2.31% and 2.44% at the latest.

While portraying the mood, S&P 500 Futures print mild gains while Wall Street closed in green and weighed on the US Dollar. That said, the US 10-year Treasury bond yields dropped nearly two basis points to 3.69% at the latest.

Looking ahead, USD/CAD traders should observe the US CPI data closely as the recent Federal Reserve (Fed) comments appear light when suggesting more rate hikes. Also, the Fed policy pivot talks aren’t far from the table; hence, any disappointment from the US inflation numbers won’t hesitate to propel the Loonie pair further toward the south. Also important to watch is the Oil price.

Technical analysis

Unless crossing the 50-DMA hurdle surrounding 1.3480, the USD/CAD is on the way to test an upward-sloping support line from mid-November 2022, close to 1.3270 at the latest.