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USD/CAD falls to 1.3550 despite a decline in oil prices; US PCE inflation is anticipated
The USD/CAD reverses yesterday's recovery from a five-week low. The USD's inability to protect bulls in advance of the Fed's preferred inflation index entices pair sellers. Risk aversion impacts on energy prices despite rising demand forecasts.
During Friday's Asian session, USD/CAD accepts offers to retest the intraday low near 1.3550, reversing the previous day's rebound from the monthly bottom.
In doing so, the Loonie pair disregards the recent weakening in Canada's primary export item, WTI crude oil, as the US Dollar Index (DXY) consolidates its gains from the previous day in response to the recent decrease in hawkish Fed wagers.
In spite of this, the DXY falls to 110.50, following Thursday's recovery from the five-week low, as Fed hawks receive conflicting information on the general strength of US data. The Gross Domestic Product (GDP) of the United States increased 2.6% on an annualized basis in the third quarter, exceeding expectations (Q3). Nonetheless, a fifth consecutive decline in private consumption posed a challenge to Fed hawks, as it demonstrated that policymakers are gradually approaching the target of slowing down private domestic demand, which may favor easy rate hike discussions for December at the Federal Open Market Committee (FOMC) meeting the following week.
Notable challenges to the US dollar are the sluggish US Treasury yields and the risk-averse sentiment. US 10-year Treasury rates fell to a two-week low on Thursday and are preparing for their first weekly loss in eleven weeks, which helped equities to have a good week despite the most recent deterioration in the figures.
At home, the Bank of Canada's (BOC) 0.50 percent rate hike, as opposed to the 0.75 percent projected, joins policymakers' optimism to keep USD/CAD bears optimistic.
The US Core PCE Price Index for September, which is anticipated to grow to 5.2% from 4.9% previously, will be key for the USD/CAD pair's path going ahead. A stronger reading of the Fed's favored inflation gauge might boost rates and hawkish Fed bets, which will be advantageous for pair buyers.
Combined with the pair's extended trading below the 21-DMA barrier near 1.3700, bearish MACD signals keep sellers optimistic. However, a daily close below the support zone of 1.3505-3495 looks required to indicate further losses.
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