USD/CAD stays defensive above 1.3400 as Oil price retreats, Canada Retail Sales eyed

• USD/CAD picks up bids to pare intraday losses, the first in three days.
• Fading risk-on mood, recently downbeat prices of Oil keep the pair buyers hopeful.
• Hawkish hopes from Fed, the market’s cautious sentiment can add strength to the recovery moves.
• Canada Retail Sales, US PMIs and FOMC are this week’s key catalysts.

USD/CAD bears struggle to keep the reins around 1.3430-40 during early Tuesday morning in Europe. In doing so, the Loonie pair prints the first daily loss in three amid the broad US Dollar sellers. However, fresh challenges for Canada’s key export item, namely the WTI Crude Oil, join recently easing optimism to underpin the bullish bias as the pair traders await Canadian Retail Sales for September.

WTI Crude Oil retreats to $79.90 while reversing the early Asian session rebound from the yearly low. The black gold prices recently dropped amid chatters that the key global oil producers, namely the OPEC+ group, are likely to keep the latest oil production accord until 2023, which in turn suggests more output. On the other hand, the latest Covid woes from China weigh on the demand concerns and drown the energy benchmark.

Elsewhere, the US Dollar Index (DXY) rebounds from its intraday low but still prints mild losses around 107.70 on a day amid recently downbeat comments from the US Federal Reserve (Fed) officials. Also likely to have weighed on the USD/CAD could be the softer second-tier activity data from the US.

Federal Reserve Bank of Cleveland President Loretta Mester said in a CNBC interview, “I think we can slow down from 75 at the December meeting.” Previously, Atlanta Federal Reserve President Raphael Bostic also turned down the 75 bps move and challenged the US Dollar bulls. Additionally, downbeat prints of the Chicago Fed National Activity Index for October, to -0.05 compared to 0.17 prior, also allow the US Dollar buyers to take a breather.

Even so, escalating COVID-19 fears from China, as the nation reports the seven-month high virus numbers and rush to lock down the major hubs, underpin the bullish bias over the USD/CAD pair. Further, the hopes of aggressive Fed rate hikes especially after the previous week’s strong US Retail Sales and Producer Price Index (PPI) keep the Loonie pair buyers hopeful.

Looking forward, USD/CAD traders will pay attention to Canadian Retail Sales for September, expected -0.7% MoM versus 0.7% prior, for clear directions. However, preliminary readings of the monthly activity data and the Federal Open Market Committee (FOMC) Meeting Minutes are the key catalysts for the pair.

Technical analysis

The previous support line stretched from August 11, as well as the 21-Day Moving Average (DMA), respectively near 1.3460 and 1.3480, challenges the USD/CAD buyers.