USD/CAD grinds higher past 1.3150 on mildly bid US dollar, softer oil, eyes on US Retail Sales

• USD/CAD picks up bids to reverse early Asian session losses around weekly top.
• Market’s anxiety joins hawkish Fed bets to underpin US dollar strength.
• Oil prices fail to justify supply crunch fears, IEA’s upbeat demand forecasts due to recession fears.

USD/CAD prints a three-day uptrend as it approaches the 1.3200 threshold, around 1.3170 during early Thursday morning in Europe. In doing so, the Loonie pair picks up bids to reverse the early Asian session losses while approaching the key resistance line.

The US dollar’s rebound and the downbeat prices of Canada’s main export item, WTI crude oil, could be linked to the quote’s latest strength. However, the market’s lack of interest ahead of the key US Retail Sales seemed to test the bullish moves.

That said, the US Dollar Index (DXY) reverses the previous day’s downbeat performance around 109.70 even as the US Producer Price Index (PPI) flashed softer readings in August. US PPI declined to 8.7% YoY in August from 9.8% in July, versus 8.8% market forecasts. Details suggest that the PPI ex Food & Energy, better known as Core PPI, also eased to 7.3% YoY from 7.6% but surpassed the market expectation of 7.1%.

Even so, the 75% chance of the Fed’s 75 basis points (bps) rate hike in the next week, as well as the 25% odds favoring the full 100 bps Fed rate lift, as per the CME’s FedWatch Tool, favor the DXY bulls.

On the same line could be US President Joe Biden’s rejection of US fears and China’s stimulus are some of the key developments that should have favored the risk appetite. However, the Sino-American tussles and the energy crisis in Europe seemed to have challenged the optimism. It’s worth noting that the looming labor strike in the US appears an extra burden on the risk appetite.

It should be noted that the WTI crude oil prices remain pressured at around $88.00 despite fears of a supply crunch in the US and upbeat demand forecasts from the International Energy Agency (IEA). The reason could be linked to the recession fears and higher inventory data from the Energy Information Administration (EIA).

Also read: US Retail Sales Preview: Can consumers keep up with inflation? A breather could weigh on the dollar

Amid these plays, the S&P 500 Futures print mild gains around 3,670 whereas the US 10-year Treasury yields remain directionless near 3.416%.

Moving on, a light calendar at home and sluggish prices of WTI crude oil highlight the US Retail Sales for August, expected to remain unchanged at 0.0%, as the main catalyst of the day. Should the data arrive as strong, the USD/CAD prices may pierce the key 1.3210 hurdle.

Technical analysis

A two-month-old resistance line, around 1.3210 by the press time, appears the key hurdle for the USD/CAD bulls to cross during further advances. Meanwhile, the pair buyers remain hopeful until staying beyond the 50-SMA on the four-hour chart and the 61.8% Fibonacci retracement level of the pair’s July-August downside, respectively near 1.3100 and 1.3030 in that order.