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USD/CAD recovers to 1.2950 on weaker oil, risk aversion ahead of Powell's Fed speech, and BOC inflation data
USD/CAD reverses a two-day slump and grinds higher around daily highs. Fears of a recession and market apprehension in advance of Powell's testimony boost the USD's comeback. As US President Biden presses for gas tax reduction, oil prices also fall. Canada's May inflation figures and retail sales were both stronger than expected.
During Wednesday's Asian session, USD/CAD bulls return to the table following a two-day hiatus as the price refreshes its intraday high above 1.2950. In doing so, the Loonie-U.S. dollar pair tracks a stronger U.S. dollar amid the market's risk-averse sentiment preceding Fed Chair Jerome Powell's speech. The decline in oil prices, Canada's most important export commodity, contributes to the upswing.
The US Dollar Index (DXY) posts its first daily gain of the week around 104.60 as mood deteriorates due to worries of Fed aggressiveness and the US recession. US President Joe Biden and Treasury Secretary Janet Yellen attempted to persuade the financial markets that a recession is not imminent. According to Reuters, Thomas Barkin, president of the Federal Reserve Bank of Richmond, stated that the U.S. economy would not quickly return to its previous decade of stable growth, employment, and inflation.
In contrast, WTI crude oil prices have reached a new monthly low of roughly $108.00, a decrease of 1.5 percent as of press time, as US President Biden advocates for lower energy costs. Reuters said that "oil prices fell in early trade on Wednesday amid U.S. President Joe Biden's attempt to reduce surging fuel costs, including pressure on big U.S. corporations to help drivers during the country's peak summer demand." Notable is the fact that Biden intends to suspend the federal gas tax to reduce energy prices.
On Tuesday, Canadian Retail Sales increased by the highest in three months, by 0.9% in April, compared to projections of 0.8% and an upwardly revised 0.2% before. Annualized Existing Home Sales in the United States fell to its lowest levels in two years. In addition, the Chicago Fed National Activity Index dipped to 0.01 in May, compared to a downwardly revised 0.04 in April.
Ahead of Fed Chair Jerome Powell's crucial testimony, the USD/CAD is anticipated to see more gains due to the recent risk-aversion wave that has underpinned the US dollar's recovery advances and has also favored oil bearish. Important to monitor for May is the Bank of Canada's (BOC) Consumer Price Index Core, which is anticipated to rise 5.9 percent year-over-year compared to 5.7 percent in April. It's worth mentioning that Canada's CPI is anticipated to increase by 1% in the month in question, up from 0.6% the previous month.
Technical Evaluation
Despite the recent comeback, USD/CAD buyers remain sceptical as the quotation maintains the previous day's break to the downside of an ascending trend line from June 8 (now 1.3090).
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