USD/CAD steadies around mid-1.2700s amid softer oil, DXY rebound ahead of US data

USD/CAD dribbles inside a choppy range between 1.2760 and 1.2770 during Friday’s sluggish Asian session. In doing so, the Loonie pair traces the market’s inaction even as the sour sentiment underpins the US dollar's rebound from the lowest levels in six weeks.

That said, the US Dollar Index (DXY) picks up bids to consolidate the weekly losses around 105.25 by the press time.

The greenback’s latest gains could be linked to the comments from San Francisco Fed President Mary Day who backed opportunities of witnessing another 75 basis points (bps) of a rate hike in September, while also suggesting an upfront 0.50% rate hike to be sure. Previously, Minneapolis Fed President Neel Kashkari and Chicago Fed President Charles Evans sounded grim. That said, Fed’s Kashkari mentioned that he hasn't "seen anything that changes" the need to raise 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.

It should be noted that the Fed policymakers’ latest comments contrast with the recent easing in the US inflation data and firmer employment numbers.

On Thursday, the US Producer Price Index (PPI) for July tracked the headline Consumer Price Index (CPI) while easing to 9.8% YoY versus 11.3% prior and 10.4% market forecasts, the data published by the US Bureau of Labor Statistics revealed. Details suggest that the monthly PPI dropped to the lowest levels since May 2020, to -0.5% compared to 1.0% expected and 0.2% prior, which in turn signaled more easing of inflation fears. Elsewhere, US Initial Jobless Claims eased to 262K for the week ending August 6 versus 263K expected and downwardly revised 248K prior.

On a different page, softer prices of Canada’s main export item WTI crude oil also put a floor under the USD/CAD pair. That said, WTI crude oil prints a 0.30% intraday loss at around $93.00, snapping a three-day uptrend, amid downbeat demand forecasts for 2022 by the Organization of the Petroleum Exporting Countries (OPEC) and the International Energy Agency (IEA), published on Thursday, appear to weigh on the quote.

Also read: WTI eases towards $93.00 on OPEC/EIA demand forecasts, USD rebound

Against this backdrop, Wall Street began Thursday on a positive side before closing mixed while the US 10-year Treasury yields rallied 10 basis points (bps) to 2.88% at the latest. It’s worth noting that the S&P 500 Futures remains indecisive at around 4,215 and the US Treasury yields remain firmer by the press time.

Looking forward, the first impressions of the US Michigan Consumer Sentiment Index (CSI) for August, expected at 52.5 versus 51.5 prior, will be important to watch for clear directions.

Also read: Michigan Consumer Sentiment Index Preview: Good news for the dollar but not for households

Technical analysis

Although the 200-DMA level surrounding 1.2745 challenges the USD/CAD bears, recovery moves need validation from the 1.2800 resistance, comprising the 100-DMA, to convince the buyers.