USD/CAD reverses from multi-day top as Oil bears take a breather, focus on Fed, geopolitics

• USD/CAD takes offers to refresh intraday low, snaps two-day uptrend at seven-week high.
• Fresh geopolitical concerns, cautious optimism allow Oil price to lick its wounds.
• Fed hints remain in favor of higher rates, China-Russia ties escalate geopolitical fears.
• Second-tier US data can entertain traders but Japan’s off, retreat in yields may allow further consolidation of gains.

USD/CAD takes offers to refresh the intraday low near 1.3540 as it reverses from a seven-week high marked the previous day during early Thursday. In doing so, the Loonie pair prints the first daily loss in three amid the market’s consolidation, as well as cautious optimism in the market.

That said, the absence of Japanese traders, due to the holiday in Tokyo, joins the previous retreat in the US Treasury bond yields and a pullback in the US inflation expectations to weigh on the latest USD/CAD price. That said, the 10-year and 5-year breakeven inflation rates from the St. Louis Federal Reserve (FRED) signal a pullback in the US inflation expectations by retreating from the multi-day top.

On the same line could be a corrective bounce in Canada’s key export item, namely WTI crude oil. The black gold dropped to the 13-day-low by losing nearly 3.0% the previous day after downbeat US inventories joined the strong US Dollar. That said, the energy benchmark prints mild gains at around $74.00 by the press time.

Despite the latest consolidation in the market, the USD/CAD buyers remain hopeful amid hawkish Federal Reserve (Fed) concerns and geopolitical fears.

Talking about geopolitics, US President Joe Biden thinks that his Russian counterpart isn’t up to using nuclear arms by backing off an international treaty. However, the fears surrounding the Ukraine-Russia war are far from over, with the latest edition of the West and China escalating the matter to the worse. That said, the Wall Street Journal (WSJ) recently said that the US is considering the release of intelligence on China’s potential arms transfer to Russia. Previously, the China-Russia ties seemed to have escalated the geopolitical woes as the US strongly criticized such moves and favored the rush towards risk safety, which in turn favored the US Dollar.

Elsewhere, the latest Federal Open Market Committee’s (FOMC) Monetary Policy Meeting Minutes stated that all participants agreed more rate hikes are needed to achieve the inflation target while also favoring further Fed balance sheet reductions. On the same line, St. Louis Federal Reserve President James Bullard also mentioned that the Fed will have to go north of 5% to tame inflation, as reported by Reuters. The policymaker also stated that he believes there are good chances they could beat inflation this year without creating a recession. Additionally, Federal Reserve Bank of New York President John Williams highlighted the concerns favoring the Fed’s higher rates by saying, per Reuters, “Fed is absolutely committed to getting inflation back to 2%.”

Amid these plays, US Treasury bond yields remain inactive after retreating from the multi-day top while Wall Street closed mixed but the S&P 500 Futures remain mildly bid of late.

Looking ahead, second estimations of the US Personal Consumption Expenditures (PCE) details for the fourth quarter (Q4), as well as the preliminary readings of the US Q4 Gross Domestic Product (GDP), will be important for fresh directions to the USD/CAD traders.

Technical analysis

A daily closing beyond the 100-DMA, around 1.3515 by the press time, directs USD/CAD towards the last January’s peak of 1.3685.