USD/CAD Recovers Recent Losses Below 1.3200 As WTI Crude Oil Retreats And The US Dollar Advances

In the vicinity of 1.3175-80, the USD/CAD nurses its wounds after suffering its largest daily loss in eight days. In doing so, the Loonie pair justifies the most recent decline in the price of WTI crude oil, Canada's primary export commodity, as well as the strengthening of the US Dollar on a sluggish Tuesday morning in Asia.

USD/CAD disregarded the US Dollar investors and the Bank of Canada (BoC) survey as the WTI crude oil price rallied to reestablish the three-month high. Lately, however, the market's reevaluation of oil fundamentals and a cautious outlook ahead of Wednesday's Federal Open Market Committee (FOMC) monetary policy announcements have prompted the Loonie pair sellers.

Reuters reported on Monday that the latest Bank of Canada (BoC) survey indicates that the majority of market participants anticipate the BoC to maintain its policy rate at 5% until the end of 2023. The survey also revealed that the median participant expectation is for the BoC to lower the key interest rate to 3.50 percent in the fourth quarter of 2024.

Alternatively, the US Dollar Index (DXY) reached a two-week peak near 101.40 during a five-day uptrend, and was bid mildly near 101.45 as of press time, amid relatively better PMI data and optimistic yields. However, the first readings of the US S&P Global Manufacturing PMI for July increased to 49.0 from 46.3 previously and 46.4 market expectations, while the Services PMI decreased to 52.4 from 54.0 previously and 54.4 market expectations. The Composite PMI decreased to 52.0 from 53.2 previously and 53.1 market expectations. Nevertheless, the Chicago Fed National Activity Index for June decreased to -0.32 from -0.28 previously (revised) and 0.03 market expectations.

It should be noted that the overall weakness in global PMIs boosted market sentiment in anticipation of an end to the tightening cycle at the major central banks, allowing WTI crude oil to remain firmer despite concerns of a supply crunch. In addition, expectations of additional stimulus from China and fears that the United States will purchase more oil to replenish its Strategic Petroleum Reserves (SPR) were positive for oil purchasers. Similarly, there are rumours that energy markets will remain constrained at the end of 2023. As a result of these manoeuvres, the price of WTI crude oil increased by the most in six weeks to reach its highest level in three months, around $79.25, before decreasing by 0.11% intraday to $78.75 as of press time.

In the near future, the US CB Consumer Confidence for July, which is anticipated to be 112.1 versus 109.70 previously, will entertain USD/CAD traders, but the Oil price and market's Fed bets will garner the most attention for obvious direction.