USD/CAD: Strong Oil price probes bulls around 1.3600, Canada Q4 GDP eyed

USD/CAD buyers flirt with the 1.3600 threshold during Monday’s sluggish Asian session, following a two-week uptrend to the highest levels since early January. The Loonie pair’s latest gains seem to take more clues from the upbeat US Dollar than prices of Canada’s key export, namely the WTI crude oil. However, the cautious mood ahead of the key Canadian data appears to be probing the pair buyers of late.

That said, the US Dollar Index (DXY) marked a four-week uptrend by the end of Friday, grinding near the highest levels in seven weeks of late, on robust United States data, especially concerning inflation, underpinned hawkish Federal Reserve concerns.

On Friday, the Personal Consumption Expenditures (PCE) Price Index rose to 5.4% YoY versus 5.3% prior and 4.9% market forecasts. Further, the more relevant Core PCE Price Index, known as Fed’s favorite inflation gauge, rose to 4.7% YoY, compared to 4.6% prior and analysts' forecast of 4.3%.

While tracing upbeat US data, the Federal Reserve (Fed) officials were also hawkish and backed the US Dollar bulls and USD/CAD pair buyers.

Cleveland Fed President Loretta Mester told CNBC on Friday that his funds' rate was above the median in December and still thinks they need to be somewhat above 5%. The policymaker also added that inflation risks still tilted to the upside. On the same line, Federal Reserve Bank of Boston President Susan Collins said, “More rate hikes needed to deal with 'too high' inflation.”  Furthermore, Governor Philip Jefferson said, “Wage growth in the US is running too high to be consistent with a timely and sustainable return to the Federal Reserve's 2% inflation objective.”

Also highlighting the US inflation woes was US Treasury Secretary Janet Yellen, who spoke on the sideline of the Group of 20 (G20) meetings on Friday. “Inflation is coming down if you measure it on a 12-month basis, but still core inflation, which I think will fall further, remains higher than is consistent with 2%,” said the diplomat.

On the other hand, WTI crude oil seesaw around $76.50 after bouncing off a three-week low in the last two consecutive days. It’s worth noting that the odds of higher energy demand due to easing recession fears favor Oil prices.

Amid these plays, Wall Street closed in the red while the US two-year Treasury bond yields rose to the highest levels since early November 2022.

Moving on, US ISM Manufacturing and Services PMI and Canada’s fourth quarter (Q4) Gross Domestic Product (GDP) will be important for the USD/CAD traders to watch for clear directions. That said, inflation concerns and the Fed talks appear to have more capacity to propel USD/CAD than the Canadian data unless being extremely different from market forecasts.

Technical analysis

A daily closing beyond a downward-sloping trend line from November 2022, now immediate support around 1.3560, directs the USD/CAD bulls towards the last December’s peak surrounding 1.3700.