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USD/CAD pares largest daily advances in two weeks below 1.3400 amidst slow Oil price and anticipation of Canada's GDP
The USD/CAD pair declines from its intraday peak and consolidates its largest daily gains in two weeks. Following a decline due to risk aversion and expectations of increased supply, the Oil price was supported by news stories referencing Covid. Prior to important data/events, the market attitude stays mixed. Canada GDP for November and US CB Consumer Confidence can occupy traders before to the FOMC.
In the early hours of Tuesday, sluggish markets prevent the USD/CAD pair from extending Monday's recovery. In doing so, the Loonie pair validates the halt in the Oil price decline and the risk-aversion wave preceding Canada's monthly Gross Domestic Product (GDP) figures.
As a result, WTI crude oil halts its two-day decline near $78, as optimism for an end to the Covid problems revive expectations for energy consumption. Earlier in the morning, reports indicating that US President Joe Biden's administration was about to rescind the Covid-led emergencies looked to have boosted the mood. Reuters reported on Monday that China's Center for Disease Control and Prevention (CDC) stated, "China's current wave of COVID-19 infections is nearing an end, and there was no substantial increase in cases during the Lunar New Year break."
Aside from this, the cautious optimism is bolstered by news from Chinese media indicating the state banks' cheap loans to stimulate consumption in Beijing.
However, uncertainty surrounding this week's top-tier central bank meetings and the US jobs report, not to mention China's return from one-week-long Lunar New Year (LNY) vacations, appears to challenge the risk-on sentiment and keep USD/CAD buyers optimistic.
In addition, Monday's optimistic readings of the US Dallas Fed manufacturing index for January, which soared to -8.4 while adding 11.6 points and marked the highest level since May 2022, support the bullish sentiment around the USD/CAD pair.
Against this context, S&P 500 Futures show modest gains despite dismal Wall Street performance, while US 10-year Treasury rates remain constant at approximately 3.55 percent after a three-day winning streak.
Prior to the fourth quarter (Q4) US Employment Cost Index (ECI) and the Conference Board's Consumer Confidence index in January for unambiguous guidance, the Canadian GDP for November, estimated to be 0.0% versus 0.1% previously, may offer immediate direction to the Loonie pair. Nonetheless, expectations indicate that the US Consumer confidence index will rise, but a projected weaker print of the US ECI, possibly falling to 1.1% from 1.2%, might enhance the dovish tilt around the Fed and tempt USD/CAD bears.
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