USD/CAD stays defensive above 1.3100 amid gas woes, focus on BOC, Canada employment

• USD/CAD grinds higher around the yearly top, reverses Friday’s pullback.
• Russian oil flow, G7 chatters challenge the sentiment but supply fears exert downside pressure on Loonie pair.
• Risk catalysts are important for fresh clues, especially linked to the energy market.
• BOC braces for another bumper rate hike but oil price moves, Canada jobs report will be crucial to watch.

USD/CAD begins the week on a positive footing around 1.3130-40 as bulls brace for the key Bank of Canada (BOC) monetary policy decision and Canada employment data amid oil woes for the bloc. In doing so, the Loonie pair returns to the bull’s radar but mixed concerns over Canada’s main export item, namely WTI crude oil, challenge the upside momentum.

That said, the WTI crude oil prices remain firmer around $87.70 as hopes of easing the energy crisis wane even as Gazprom signals more gas supplies to Europe. The reason could be linked to Russia’s indefinite halt of energy supplies through the Nord Stream 1 pipeline, as well as the failure of the US and Iran policymakers to unveil the oil deal.

In addition to the energy crisis, mixed US data also test the USD/CAD traders. On Friday, US employment data marked mixed readings as the headline Nonfarm Payrolls (NFP) rose past 300K forecast to 315K, versus 526K prior, but the Unemployment Rate rose to 3.7% compared to 3.5% expected and prior. Further details reveal that the Average Hourly Earnings reprinted 5.2% growth for August, a bit lesser than the 5.3% market consensus. Also, Factory Orders dropped to -1.0% for July compared to 0.2% forecasts and 1.8% previous readings.

Elsewhere, US President Joe Biden’s administration poured cold water on the face of expectations that the US may ease/remove the Trump-era tariffs on China. “The Biden administration will allow Trump-era tariffs on hundreds of billions of dollars of Chinese merchandise imports to continue while it reviews the need for the duties,” said Bloomberg. The news magnifies the risk-off mood and exerts additional downside pressure on the USD/CAD prices.

Amid these plays, Wall Street closed on a negative front while S&P 500 Futures print mild losses at the latest. Further, the US 10-year Treasury yields dropped seven basis points (bps) to 3.195%.

Moving on, a holiday in the US and Canada might restrict Monday’s USD/CAD moves, which in turn highlight risk catalysts to watch for clear directions. Following that, the monthly prints of Canada’s employment numbers for August and the BOC interest rate decision will be important for the pair traders to watch as the Canadian central bank is likely to announce 0.75% rate hike after inflating the benchmark by 1.0% in the last meeting.

Technical analysis

An upward sloping resistance line from late December 2021, around 1.3170 by the press time, challenges USD/CAD bulls amid a nearly overbought RSI (14) line. The pullback moves, however, need a clear downside break of the three-week-old support line, at 1.3010, to recall the sellers.