USD/CAD pares US inflation-led losses below 1.2800 despite firmer oil prices

USD/CAD picks up bids to refresh intraday high near 1.2785 as traders lick US inflation-led wounds at a two-month low during Thursday’s Asian session. In doing so, the quote justifies the US dollar’s recent rebound amid doubts over the Fed’s next move and China-linked headlines while ignoring upbeat prices of Canada’s main export item, WTI crude oil.

The Loonie pair slumped the most since early June the previous day after the US Consumer Price Index (CPI) declined to 8.5% on YoY in July versus 8.7% expected and 9.1% prior. “After Wednesday's CPI report, traders of futures tied to the Fed's benchmark interest rate pared bets on a third straight 75-basis-point hike at its Sept. 20-21 policy meeting and now see a half-point increase as the more likely option,” said Reuters following the data.

US President Joe Biden also cheered the US CPI miss while saying, “Seeing some signs that inflation may be moderating,” as reported by Reuters. "We could face additional headwinds in the months ahead," Biden added. "We still have work to do but we're on track," adds US President Biden.

However, Minneapolis Fed President Neel Kashkari and Chicago Fed President Charles Evans raised doubts about the latest easing of hawkish Fed bets. Fed’s Kashkari mentioned that he hasn't "seen anything that changes" the need to increase the Fed's policy rate to 3.9% by year-end and to 4.4% by the end of 2023. Further, Fed policymaker Evens stated, “The economy is almost surely a little more fragile, but would take something adverse to trigger a recession.” Fed’s Evans also called inflation "unacceptably" high.

In addition to the Fedspeak, headlines surrounding China underpinned the latest rebound in the US dollar. Reuters relied on sources to mention that the saying US President Biden rethinks steps on China tariffs in the wake of Taiwan's response. Additionally, a jump in the coronavirus cases from China, to 700 new confirmed cases in the mainland on August 10 versus 444 a day earlier, also weighs on the pair.

Against this backdrop, S&P 500 Futures print mild gains near 4,220 by the press time after Wall Street rallied and the US Treasury yields remained mostly unchanged the previous day. That said, the WTI crude oil grinds higher past $91.00, up 0.10% intraday, whereas the US Dollar Index (DXY) gains 0.14% to 105.40 at the latest.

Looking forward, the weekly readings of the US Jobless Claims and the monthly Producer Price Index (PPI) for July could entertain the gold traders. However, major attention should be given to the qualitative factors in the wake of recent risk-negative headlines. Also important will be the monthly oil demand forecasts from the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA).

Technical analysis

USD/CAD recovery aims for the 100-DMA level surrounding 1.2800. However, the previous resistance line from early June, around 1.2820 by the press time, challenges the bull’s return. On the contrary, fresh selling remains doubtful until the quote exceeds the 200-DMA support, near 1.2745 at the latest.