USD/CAD grinds higher around 1.2750 as softer oil prices battle risk-aversion

USD/CAD retreats from intraday surrounding 1.2750 ahead of Tuesday’s European session, printing mild gains after reversing from a one-week top the previous day.

A pullback in the prices of Canada’s key export item, WTI crude oil, seems to underpin the Loonie pair’s latest run-up. That said, WTI prints 0.35% intraday losses around $92.90 by the press time, portraying a pullback from a seven-month-old resistance line amid overbought RSI conditions.

Also favoring the quote could be the gradual recovery from intraday low by the US Dollar Index (DXY), mainly due to the Russia-linked risk-off mood. Headlines conveying satellite images of multiple pre-war measures near the Russia-Ukraine border seem to have recently weighed on the market sentiment, which in turn could have favored the DXY amid faster rate hike expectations from the Fed.

However, hopes of overcoming the truckers’ protests that paralyzed North America’s biggest trade route challenge USD/CAD bears. “Canadian Prime Minister Justin Trudeau on Monday activated rarely used emergency powers in an effort to end protests that have shut some U.S. border crossings and paralyzed parts of the capital,” said Reuters.

Amid these plays, the US Treasury yields are intraday losses around 1.98%, down 1.5 basis points (bps), whereas the S&P 500 Futures remain indecisive at the latest. On Monday, the bond coupons regained upside momentum after stepping back from a 2.5-year high on Friday whereas the Wall Street benchmark closed in the red, despite mildly positive week-start performance.

Looking forward, the US Producer Price Index (PPI) for January, expected 9.1% YoY versus 9.7% prior, as well as the Empire State Manufacturing Index for February, bearing the market consensus of 12 versus -0.7% previous readouts, will direct intraday moves of the USD/CAD pair. However, major attention will be given to Russia-Ukraine headlines and Fedspeak, not to forget weekly oil inventory details and Canadian political news.

Technical analysis

USD/CAD remains sidelined between a six-week-old descending resistance line and the 100-DMA, respectively around 1.2785 and 1.2625. However, bullish MACD signals and recently firmer RSI keep buyers hopeful.