USD/CAD remains below 1.2600 on oil recovery, BOC’s Macklem eyed

• USD/CAD fades recovery from monthly low, pressured of late.
• Firmer USD, EIA stockpiles pulled WTI oil prices from multi-day top before the latest rebound.
• Market sentiment stays firmer on optimism over US debt ceiling extension, challenging the US dollar’s safe-haven demand.
• BOC’s Macklem, US Jobless Claims may entertain traders but risk catalysts are the key.

USD/CAD remains pressured around 1.2565, fading the previous day’s corrective pullback amid Thursday’s Asian session.

Although a pullback in oil prices from the highest since November 2014 joined firmer US dollar to underpin the USD/CAD bounce, risk-on mood challenged the pair buyers.

That said, the US Dollar Index (DXY) poked the yearly high, marked in September, before easing to 94.22 by the end of Wednesday’s North American session. In doing so, the greenback gauge tracked weakness in the US Treasury yields amid expectations that the US policymakers will be able to avoid empty pockets by availing a short-term extension to the debt limit, recently backed by US Senate Republican Leader Mitch McConnell.

Also favoring the market sentiment were headlines concerning the US-China ties. Chinese media portrays recently positive relations between the US and China, from the latest communications between US President Joe Biden and his Chinese counterpart Xi Jinping.  Biden and Xi Jinping previously respected the Taiwan agreement and chatters are also loud that they meet, virtually, by the year-end. Furthermore, the US also considered exclusion request for China imports on Tuesday, which is under public preview and favors Chinese media statements.

Though, comments from Secretary of State Antony Blinken, relating to China’s action over the Taiwan issue and a push to act responsibly in matters relating to Evergrande poke the optimism.

Elsewhere, oil prices dropped on firmer USD and downbeat official inventory report from the US Energy Information Administration (EIA) before recently taking rounds to $77.00. That said, the weekly prints of EIA Crude Oil Stocks Change for the period ended on October 01 rose past -0.418M expected to +2.346M.

Moving on, US policymakers’ voting on the debt ceiling extension will be the key while the weekly jobless claims and a speech from the Bank of Canada (BOC) Governor Tiff Macklem will also direct near-term USD/CAD moves. BOC’s Macklem may try to defend the hawkish bias of the central bank but it all depends upon Friday’s US and Canadian jobs reports for September.

Read: Canadian Jobs Preview: Three reasons why this publication provides a straightforward trading opportunity

Technical analysis

Failures to cross 50-DMA, near 1.2630, keep directing USD/CAD towards breaking an ascending support line from late June, near 1.2565. However, 200-DMA around 1.2515 will challenge the bears afterward.