USD/CAD ignores BoC’s Macklem to aim for 1.3400 amid US Dollar rebound, Oil price retreat

• USD/CAD slips off bear’s radar following its rebound from two-month low.
• US Dollar portrays corrective bounce on mostly upbeat US data, Fed policymakers’ resistance for easy money policy.
• Oil price ease on US Dollar rebound, comments from IEA.
• Preliminary readings of April’s US PMIs, Canadian Inflation, Retail Sales and BoC’s Macklem eyed for clear directions.

USD/CAD begins the trading week on a defensive mode around 1.3365-70, after posting the first daily gains in five the previous day. In doing so, the Loonie pair struggles to justify hawkish comments from Bank of Canada (BoC) Governor Tiff Macklem as the US Dollar bears take a breather while the Oil price retreats.

That said, Bank of Canada (BoC) Governor, Tiff Macklem mentioned on Friday, that the governing council discussed raising interest rates on Wednesday when they decided to leave them on hold at 4.50%, as expected, per Reuters. The policymaker also added that interest rates may need to stay at higher levels for a longer period of time to get inflation back to the target. 

Additionally, WTI crude oil also bears the burden of comments from the International Energy Agency (IEA), as well as the latest rebound in the US Dollar, while easing to $82.40 after posting four-day uptrend in the last. IEA’s latest monthly Oil market report said, “Output cuts announced by OPEC+ producers risk exacerbating an oil supply deficit expected in the second half of the year and could hurt consumers and global economic recovery.”

On the other hand, the US Dollar Index (DXY) snapped a three-day south run and bounced off the lowest level in a year after the latest round of the US data and comments from the Federal Reserve (Fed) officials push back dovish bias about the US central bank.

On Friday, US Retail Sales dropped by 1.0% for March versus -0.4% expected and -0.2% prior. On the contrary, Industrial Production grew by 0.4% during the stated month compared to 0.2% market forecasts and prior reading. Additionally positive was the preliminary reading of the University of Michigan's (UoM) Consumer Confidence Index for April which improved to 63.5 versus 62.0 analysts’ expectations and previous readings. Furthermore, Year-ahead inflation expectations rose from 3.6% in March to 4.6% in April while its Five-year counterpart reprinted 2.9% for the said month.

“The recent developments are consistent with one more rate hike,” said Atlanta Federal Reserve (Fed) President, Raphael Bostic in an interview with Reuters this Friday. On the same, Fed Governor Christopher Waller mentioned that the recent data show that the Fed hasn't made much progress on its inflation goal and added that rates need to rise further, per Reuters.

However, Federal Reserve Bank of Chicago President Austan Goolsbee said in an interview with CNBC on Friday that he still wants to see the data. The policymaker also added, “But let's be mindful we've raised a lot; some of the lag is coming through possibly in today's retail sales number."

Amid these plays, Wall Street closed with mild losses and the bond yields managed to recover.

Looking forward, a light calendar may allow the USD/CAD pair to consolidate latest losses but the preliminary readings of the US PMIs for April and the Canadian Inflation and Retail Sales for March and February respectively will be important to watch. Also important is a speech from BoC’s Macklem to confirm his latest hawkish comments despite offering no change in the rates.

Technical analysis

USD/CAD pair’s U-turn from a five-month-old ascending support line, around 1.3300 by the press time, needs validation from a downward-sloping trend line resistance from late March, close to 1.3420 at the latest. That said, the RSI and MACD do support further recovery in the Loonie prices.