USD/CAD seesaws below 1.3200 as US inflation-led blow jostles with sluggish oil

• USD/CAD grinds higher around one-week top after rising the most since August 2021.
• US dollar rallied as US CPI renewed hawkish Fed bets, recession woes.
• Oil’s supply crunch fears, OPEC’s demand hopes probed pair buyers.
• Second-tier data can entertain traders ahead of next week's FOMC.

USD/CAD remains mildly bid around 1.3175, after rising the most in 13 months, as softer oil prices join sluggish market sentiment during early Wednesday. The Loonie pair’s latest gains could be linked to the US inflation data, as well as downbeat prices of Canada’s main export item WTI crude oil.

That said, WTI crude oil extends the previous day’s pullback from the weekly top, down 0.35% around $87.00 by the press time. In doing so, the black gold pays more attention to the recession woes than the fears of a supply crunch and the optimistic demand forecasts from the Organization of the Petroleum Exporting Countries (OPEC).

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On Tuesday, US inflation data renewed fears of the Federal Reserve’s aggressive rate hike, as well as propelled the recession woes. Also favoring the USD/CAD bulls were the geopolitical concerns surrounding China and Russia. That said, US Consumer Price Index (CPI) for August rose past 8.1% market forecasts to 8.3% YoY, versus 8.8% prior regains. The monthly figures, however, increased to 0.1%, more than -0.1% expected and 0.0% in previous readings. The core CPI, which means CPI ex Food & Energy, also crossed 6.1% consensus and 5.9% prior to print 6.3% for the said month.

Following the US CPI announcement, the hawkish Fed bets increased, with the 75 basis points (bps) of a hike appearing almost certainly next week. It’s worth noting that there is around 25% chance that the US Federal Reserve (Fed) will announce a full 1.0% increase in the benchmark Fed rate on September 21 meeting.

The inversion between the short-term and the long-term US Treasury bond yields also widened after US inflation data and propelled the recession woes, which in turn propelled the USD/CAD prices due to the pair’s risk-barometer status. That said, the US 10-year Treasury yields rallied to 3.412% and those for 2-year bonds increased to 3.76% following the data, around 3.41% and 3.745% respectively at the latest. Furthermore, the US stocks had their biggest daily slump in almost two years after the US CPI release, which in turn favored the bulls.

Recently, US President Joe Biden mentioned, “I'm not concerned about the inflation report released today.” The US leader also added that the stock market does not always accurately represent the state of the economy.

Looking forward, European Union (EU) Chief Ursula von der Leyen’s plans for the energy price capping will be important as it will directly affect oil prices and the USD/CAD in turn. Following that, the US Producer Price Index (PPI) before Thursday’s August month US Retail Sales and Friday’s preliminary reading of the Michigan Consumer Sentiment Index for September, will direct the moves. Above all, next week’s Federal Open Market Committee (FOMC) will be a crucial event for the pair traders to watch for clear directions.

Technical analysis

A strong bounce off the 1.2955-60 support confluence, comprising the 50-SMA and the 38.2% Fibonacci retracement level of June-July upside, keeps USD/CAD buyers hopeful of challenging the yearly high near 1.3225 marked in July.