USD/CAD: Oil bulls test post Fed rebound below 1.2800, US PMI, Canada Retail Sales eyed

USD/CAD fades the post-Fed bounce off weekly low near 1.2770 during Thursday’s Asian session. While the Fed tapering hints recalled the bulls, firmer oil and risk-on sentiment defended the pair sellers ahead of the key monthly data from the US and Canada.

The US Dollar Index (DXY) ends Wednesday on a firmer note with the heaviest daily gains in a week after Fed Chairman Jerome Powell surprised markets with his hawkish style. The Fed Boss Powell not only hints at the positive conditions matching for the consolidation of the asset purchase but also signaled the start of taper as soon as the next meeting, even if on good employment data not needing too strong figures.

As the key decision, Fed matched market expectations of keeping the Fed rate unchanged at 0.25% but the policymakers were divided over the rate hike, now expecting a start from either 2022 or 2023 versus the previous support for 2023. The same hints at the hawkish view of the policymakers.

Although the DXY benefited from the Fed tapering news, market sentiment remained firmer as hints of rate hikes were blurry and the US central bank revised down growth forecasts for 2021.

Also contributing to the risk-on mood was the China Communist Party’s (CCP) deal with the struggling real-estate player Evergrande to avoid default and safeguard the monetary system follows the People’s Bank of China’s (PBOC) heavy liquidity injection.

Other than the upbeat mood, EIA Crude Oil Stocks change for the week ended on September 17, -3.481M versus -6.422M prior, adds to the USD/CAD weakness as firmer oil favors the Canadian dollar due to Ottawa’s reliance on energy export.

Looking forward, risk catalysts may entertain USD/CAD traders, mostly to the bears, before preliminary readings of the US Markit PMIs for September and Canada Retail Sales for July. Given the upbeat expectations from the scheduled data, the pair seems set for further weakness.

Technical analysis

USD/CAD sellers may rely on the failures to cross the 1.2830 hurdle, followed by a downside break of a two-month-old support-turned resistance near 1.2800, to aim for a three-week-old support line near 1.2690.