USD/CAD ignores strong oil price, DXY retreat around 1.3150, US NFP eyed

USD/CAD struggles for clear directions around mid-1.3100s as traders await the key US employment report for August on Friday. The Loonie pair’s latest inaction fails to justify the firmer prices of Canada’s main export item, namely WTI crude oil, as well as ignores the pullback of the US Dollar Index (DXY).

WTI crude oil prices consolidate weekly losses around a fortnight low, picking up bids to $88.10 while snapping a three-day downtrend. Chatters that the Organization of the Petroleum Exporting Countries and allies, together called OPEC+, due to meet on September 5, could announce production cuts seem to have favored the oil buyers of late. On the same line are the fears that the US-Iran Nuclear Deal, necessary to flow the Iranian oil back into the markets, seems murky at this stage.

Elsewhere, US Dollar Index (DXY) drops 0.13% intraday to 109.52 while easing from the highest levels since 2002, marked the previous day. The greenback’s gauge eased amid downbeat forecasts for the US Nonfarm Payrolls (NFP) and Unemployment Rate for August, expected 300K and 3.5% versus 528K and 3.5% respective priors.

However, firmer US data and hawkish Fedspeak, coupled with the Treasury yield curve inversion, favor the DXY bulls. US ISM Manufacturing PMI reprinted the 52.8 figure for August versus the market expectations of 52.0. Further, the final reading of S&P Manufacturing PMI for August rose past 51.3 initial estimates to 51.5, versus 52.2 prior final for July. On the same line, US Initial Jobless Claims dropped to 232K versus 248K forecast and 237K prior. Further, the Unit Labor Cost rose 10.2% QoQ during the second quarter (Q2) versus 10.7% expected while Labor Productivity dropped by 4.1% during Q2 versus the anticipated fall of 4.5% and -4.6% prior.

Following the data, Atlanta Fed President Raphael Bostic said that the Fed has work to do with inflation, a 'long way' from 2%. Before that, the newly appointed Dallas Fed President Lory Logan joined the lines of hawkish fellow US central bankers while saying, “Restoring price stability is No. 1 priority.”

That said, the US 10-year Treasury yields seesaw around the highest levels since late June, near 3.26% by the press time, while the two-year US bond coupons follow the trend by teasing the 15-year high near 3.51%. With this, the yield curve inversion hints at the recession fears and the traders’ rush towards bonds. That said, the CME’s FedWatch Tool signals 74% chance of the Fed’s 75 basis points of a rate hike in September versus nearly 69% previously.

Moving on, oil price moves and the US jobs report will be important for the USD/CAD traders to watch for fresh impulse. Also important will be Canada’s Labor Productivity data for the second quarter (Q2) ahead of the next weeks monthly employment data.

Technical analysis

A daily closing beyond an upward sloping resistance line from late December 2021, around 1.3165 by the press time, appears necessary for the Loonie buyers to prosper. Otherwise, a pullback towards the 1.3100 threshold and August 22-23 swings, near 1.3060, can’t be ruled out.