USD/CAD recovers to 1.3060 following crude oil’s sustained weakness

USD/CAD takes the bids to 1.3060 while heading into the European session on Tuesday. The Loonie pair manages to defy Monday’s drop below 21-day SMA as oil prices keep trading southwards amid receding geopolitical tension in the Middle East. In doing so, the recent comments from China’s Commerce Ministry failed to please the buyers of export-oriented currencies like the Canadian dollar (CAD).

Although the Libyan commander’s rejection of the global policymakers’ push for peace keeps the oil supplies from Tripoli challenged, receding political tension in Iraq could have exerted additional downside pressure on the black gold. The energy prices failed to extend the week-start gap-up amid the absence of major news from the Middle East on Monday. It’s worth mentioning that the early-day news of rockets being fired in Baghdad’s green zone couldn’t gain major attention as Reuters registered no injuries.

On the trade front, China’s Commerce Ministry said that China welcomes competitive US products to enter domestic markets. However, comments like “China hopes the US to create conditions to facilitate imports to china” challenges the optimism.

Markets are now gearing up for Wednesday’s headline inflation data and monetary policy meeting by the Bank of Canada (BOC). Though, Tuesday’s Canadian Manufacturing Sales, expected +0.3% versus -0.7% prior, can offer intermediate direction.

The BOC’s Consumer Price Index Core is expected to remain unchanged at 1.9% and -0.2% on YoY and MoM respectively whereas the BOC is also likely not to change the current interest rate from 1.75%. However, comments from Governor Stephen Poloz will be closely observed for fresh impulse.

Technical Analysis

A downward sloping trend line since January 10, at 1.3070 now, restrict the pair’s immediate upside whereas pair’s drop below January 13 low near 1.3030 can recall monthly bottom surrounding 1.2900.