Forex world

April 06, 2023

USD/CAD rallies 1.3500 as Oil Price falls

- USD/CAD renews intraday high during three-day rebound from seven-week low.

- US Dollar ignores dovish shift in Fed bets, rises for the second consecutive day amid recession woes.

- WTI crude oil remains pressured as risk aversion intensifies.

- Downbeat Canada trade numbers, geopolitical woes also propel Loonie pair ahead of the key employment statistics.

USD/CAD picks up bids to renew its intraday high near 1.3485 as it pares weekly losses with a three-day uptrend during early Thursday. In doing so, the Loonie pair prepares for the all-important Canada employment data for March amid the US Dollar recovery and downbeat prices of Ontario’s key export, namely WTI crude oil.

That said, US Dollar Index (DXY) extends the previous day's rebound from a two-month low to 102.00 by the press time, up 0.12% intraday. On the other hand, WTI crude oil extends the previous day’s pullback from the 10-week high to $80.00 at the latest.

The US Dollar cheers recession woes emanating from consecutive weakness in the employment numbers, which in turn raise fears of a slowdown in the world’s biggest economy and contagion risk associated with the same.

On Wednesday, the US ADP Employment Change for March dropped to 145K from 200K expected and an upwardly revised prior of 261K. On the same line, the final readings of S&P Global Composite and Services PMIs for March also came in downbeat as the former one declined to 52.3 from 53.3 preliminary estimations while the Services PMI dropped to 52.6 from 53.8 anticipated earlier. More importantly, the US ISM Services PMI for the said month amplified pessimism as it dropped to 51.2 versus 54.5 expected and 55.1 prior. It’s worth observing that US JOLTS Job Openings for February previously slumped to the lowest levels in 19 months and bolstered job fears.

Apart from the US data-inflicted recession woes, geopolitical fears surrounding China and North Korea also weigh on the sentiment and allow the USD/CAD to grind higher. Late on Wednesday, US House of Representatives Speaker Kevin McCarthy’s talks with Taiwanese President Tsai Ing-Wen renewed the Sino-American tussles. On the other hand, North Korea on Thursday accused the U.S. and South Korea of escalating tensions to the brink of nuclear war through their joint military drills, vowing to respond with "offensive action," state media KCNA reported per Reuters.

At home, Canadian International Merchandise Trade, Exports and Imports all eased for February and weigh on the Canadian Dollar (CAD).

It should be noted, however, that CME’s FedWatch Tool suggests a nearly 57.0% of chance that the US central bank will pause its rate hike trajectory in May, which in turn probes USD/CAD bulls ahead of the monthly Canada jobs report.

Forecasts suggest a downbeat Net Change in Employment and an increase in the Unemployment rate for March, which in turn can favor Bank of Canada (BoC) doves and allow the USD/CAD buyers to remain hopeful if the data matches expectations.

Also read: Canada Employment Preview: Modest gain anticipated, but a surprise not off the table

Technical analysis

USD/CAD recovery remains elusive unless the quote stays below the 100-DMA hurdle of around 1.3530.

ADDITIONAL IMPORTANT LEVELS


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