Home Forex USD/CAD looks to regain 1.3500 despite firmer oil price, Canadian retail sales, Fed talks

USD/CAD looks to regain 1.3500 despite firmer oil price, Canadian retail sales, Fed talks

by SuperiorInvest
  • USD/CAD is licking its wounds after bouncing back from a two-week high.
  • Oil prices remain firmer amid softer US dollar, hopes of Chinese demand.
  • Recession Troubles, Fedspeak Hawkish Call Loonie Outpaces Key Canadian Stats.

USD/CAD paring recent losses around 1.3465 as it lifted bids to reverse the previous day’s decline from a 14-day high during Friday’s Asian session. At the same time, the Loonie pair is ignoring firmer prices for Canada’s key export commodity, namely WTI crude oil. The reason could be related to fresh concerns about US economic growth and hawkish Fedspeak.

WTI crude is poised for a second weekly gain as it hovers around $81.00 despite the US Energy Information Administration (EIA) reporting a rise in weekly crude inventory changes of 8.408 million versus expectations of -1.75 million and 18.962 million. The reason would could be related to hopes of more energy demand from China as well as a softer US dollar. “Oil demand in China rose by nearly 1 million barrels per day (bpd) from the previous month to 15.41 million barrels per day in November, the highest level since February, according to the latest export data released by the Joint Organizations Data Initiative,” the agency said Reuters.

On the other hand, US dollar index (DXY) fell the most in a week to snap a three-day uptrend as mixed data fueled fears of a recession in the world’s largest economy. Meanwhile, the dollar’s gauge against six major currencies failed to encourage hawkish comments from Federal Reserve officials ahead of the shutdown before the FOMC, which begins this Saturday.

US jobless claims fell to their lowest level since late April 2022 at 190,000 for the week ended Jan. 13, compared with expectations of 214,000 and 205,000 a year ago. Further, the Philadelphia Fed Manufacturing Survey Index improved to -8.9 for January compared to -11.0 market forecasts and -13.7 previous readings. Alternatively, U.S. building permits fell to 1.33 million for the month in December versus the consensus of 1.37 million and 1.351 million ahead, while the number of construction starts during the month also fell to 1.382 million from 1.401 million in November versus an expected 1.359 million. It is worth noting that unfavorable retail sales in the US and Producer Price Index (PPI) raised fears of an economic slowdown in the world’s largest economy after data earlier flashed on softer wage growth and activity.

But Federal Reserve Vice Chairman Lael Brainard said it will take time and determination to get high inflation to the Fed’s 2% target. The politician also added: “The policy will have to be sufficiently restrictive for some time.” Along the same lines, Boston Fed President Collins signaled that the key level remains, that the effective Fed funds rate should settle slightly above 5.0%, implying three more rate hikes of 25 basis points.

At home, Canadian wholesale sales growth eased to -0.5% month-on-month in November, versus 1.9% expected and earlier.

Against this backdrop, Wall Street closed in the negative as yields rebounded from multi-day lows.

Looking ahead, Canadian retail sales for November, expected to be -0.5% versus 1.4% previously, could help the USD/CAD pair remain firmer in line with market forecasts. However, more attention will be paid to Fed speeches and risk catalysts for clear directions.

Technical analysis

A looming bullish cross on the MACD and a stable RSI are supporting USD/CAD’s attempt to break above the 100-DMA level, currently around 1.3515, despite failing to break the same level the previous day.

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