USD/CAD licks its wounds near 1.3450 as Oil bulls take a breather, US Dollar eyes NFP

USD/CAD aptly portrays the pre-data anxiety while making rounds to 1.3450 amid early Friday in Asia, at the lowest levels in two weeks by the press time. That said, the Loonie pair dropped the most in one month the previous day amid broad US Dollar weakness and firmer prices of Canada’s key export item, namely the WTI crude oil. However, anxiety ahead of the monthly US jobs report and passage of the US debt-ceiling deal seems to prod the pair sellers of late.

US Dollar Index (DXY) seesaws around 103.56 after a 0.65% daily fall marked on Thursday, the most in a month, to reverse from the highest levels since mid-March. That said, the United States Treasury bond yields also refreshed the weekly lows as the market’s pricing of the Fed rate hike dropped. Adding strength to the DXY could be mixed US data and receding hopes of a faster Fed rate hike, as well as firmer data from China and passage of the US debt ceiling agreement in the US House of Representatives.

Talking about the data, US ADP Employment Change eased to 278K in May from 291K prior (revised) but crossed the 170K market forecasts. On the same line, the weekly Initial Jobless Claims rose past 230K prior to 232K, versus 235K expected. Further, US ISM Manufacturing PMI eased to 46.9 in May compared to 47.0 anticipated and 47.1 previous readings whereas S&P Global Manufacturing PMI softened to 48.4 from 48.5 prior. Additionally, the US Employment Cost Index eased while the consumer sentiment gauge improved but the details were unimpressive.

On the other hand, the market’s pricing of the Federal Reserve (Fed) rate hike dropped, from 17 basis points (bps) in June on Wednesday to 7 bps on Thursday, which in turn weighed on the US Dollar and pleased the USD/CAD bears. It should be noted that the Federal Reserve Bank of St. Louis President James Bullard recently published an analysis wherein the Fed hawk accepts that the prospects for continued disinflation are good but not guaranteed, and continued vigilance is required.

Elsewhere, WTI crude oil rose the most in a month the previous day while snapping a two-day downtrend to end the day with over 3.0% daily gains to around $70.00, close to $70.15 by the press time. In doing so, the black gold cheers softer US dollars while ignoring a surprise build in the weekly inventories reported by the US Energy Information Administration (EIA). It should be noted that the concerns about no additional supply cuts from the OPEC+ also should have weighed the energy benchmark but did not.

Amid these plays, Wall Street closed in the green while the yields were down and technology shares were up, which in turn allowed the USD/CAD to remain depressed ahead of the top-tier data/events.

Looking ahead, monthly US employment clues and the last round of the Fed talks ahead of the pre-Federal Open Market Committee (FOMC) blackout period for policymakers will be eyed closely for clear directions. Forecasts suggest the headline Nonfarm Payrolls (NFP) to ease to 190K from 253K prior while the Unemployment Rate is also expected to increase to 3.5% from 3.4%.

Technical analysis

An impending “death cross” on the daily chart, a condition where the 50-DMA pierces the 200-DMA from above and suggests further downside of the Loonie pair, keeps the USD/CAD sellers hopeful unless the quote rises past 1.3510.