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USD/CAD DXY Consolidates Gains Above 1.2900 As DXY Retraces, Oil Price Rebounds Ahead Of US Inflation

  • USD/CAD is offered a bit while paring big daily gains in three weeks.
  • The US dollar retreated amid a sluggish session, with oil prices cheering firm China trade numbers, easing fears around Taiwan.
  • Canada jobs report failed to support bulls while US NFP postponed hawkish Fed bets.
  • While US inflation is the key data for the week, risk catalysts could entertain intraday traders.

USD/CAD renews intraday lows near 1.2930 as bulls take a breather after posting the biggest run-up in three weeks in Monday’s European session. In doing so, the loonie pairs well with a rebound in oil prices, Canada’s main export.

WTI crude oil prices took bids around $89.00 and extended Friday’s corrective pullback from six-month lows.

Black gold joins the Antipodeans in cheering a US dollar pullback as traders await the release of key US Consumer Price Index (CPI) data for July this Wednesday.

The US dollar index (DXY) retreated from a one-week high, up 0.05% at 106.50 at press time, as traders looked for more clues to extend Friday’s heavy run-up. The downward pressure on the greenback gauge eases fears over US-China spats over Taiwan.

Recently, Reuters came out with news indicating that China is ready for ‘regular’ military drills east of the center line of the Taiwan Strait. The Dragon Nation’s Foreign Ministry announced on Friday that it will grant US House of Representatives Speaker Nancy Pelosi permission to visit Taiwan. On the other hand, Taiwan’s Ministry of Defense reported that 66 Chinese aircraft were carrying out activities in the Taiwan Strait as of 5pm local time on Sunday. Furthermore, US Secretary of State Anthony Blinken mentioned that China’s provocative actions have increased significantly.

Elsewhere, the US 10-year Treasury retreated to 2.82% after rallying 14 basis points (bps) to 2.83% earlier in the day. Moreover, S&P 500 futures posted mild losses and Asia-Pacific shares were also under pressure.

USD/CAD rallied on Friday after the US jobs report impressed Fed hawks, noting that Canadian jobs data for July failed to justify the Bank of Canada’s (BOC) optimism.

On Friday, a firm US jobs report for July underpinned hawkish Fed bets and pulled back US dollar bulls, allowing the US dollar index (DXY) to snap a two-week slump. Accordingly, Nonfarm Payrolls (NFP) rose to 528K vs. 250K expected and earlier revised upwards by 398K. Moreover, the unemployment rate was 3.6% expected and decreased to 3.5% compared to previous readings.

On the other hand, Canada’s headline net change in employment came in at -30.6K versus market forecasts of 20K and down from the previous reading of -43.2K. However, the unemployment rate readjusted to 4.9%, compared to expectations of a rise to 5.0%.

Looking forward, USD/CAD traders should pay attention to moves in WTI crude oil, as well as risk catalysts, for fresh stimulus amid a light calendar. However, Wednesday’s US inflation data will be important to watch for clear directions.

Technical analysis

Despite the recent pullback, USD/CAD is holding the previous day’s break of the 21-DMA around 1.2910, the first in three weeks, keeping buyers hopeful of challenging the multiple tops marked since May 1.3080.

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