USD/CAD rebounds from 1.3480 support amid downbeat Oil price, focus on US debt ceiling talks

• USD/CAD picks up bids to pare intraday losses amid Canada bank holiday.
• WTI remains pressured amid fears of less energy demand, higher supplies.
• Mixed concerns about US debt ceiling negotiations, Fed keeps Loonie traders on their toes.
• Risk catalysts will be the key for short-term directions.

USD/CAD gathers strength around the intraday low as bears fail to defend the first daily loss in three while bouncing off the 100-DMA during early Monday.

The Loonie pair’s latest rebound could be linked to the downbeat performance of the WTI crude oil, Canada’s main export item. That said, the black gold drops for the third consecutive day as energy bears attack the $71.00, down 1.0% on a day around $71.15 by the press time. In doing so, the black gold justifies expectations of higher Oil production and fears of slower economic growth moving forward. That said, the US Energy Information Agency (EIA) said in its monthly report stating that the US crude oil production grew 5.6% in 2022 compared with 2021 while averaging 11.9 million barrels per day (bpd). “The main drivers of this growth are expected to be increased production in the Permian region and the Federal Offshore Gulf of Mexico,” said the EIA.

Elsewhere, the US Dollar Index (DXY) licks its wounds around 103.00 after reversing from a two-month high the previous day. In doing so, the greenback’s gauge versus the six major currencies cheers the recent cautious optimism about the US policymakers’ ability to overcome the debt ceiling expiry despite the latest failure of talks.

Recently, US President Joe Biden said his discussion with Republican House Speaker Kevin McCarthy went well while also adding that they will again talk on Monday. Previously, Senior White House Adviser Steve Ricchetti said, per Reuters, that they will keep working as he left the debt ceiling meeting early Monday during the Asian session. On the same line, US House Republican Speaker Kevin McCarthy spoke to reporters at the US Capitol following the call and said, per Reuters, that there were positive discussions on solving the crisis and that staff-level talks were set to resume later on Sunday.

On the other hand, the market’s bets of a 0.25% Fed rate hike in June have recently increased and the calls for a rate cut in 2023 have gone down due to the last week’s upbeat US economics and hawkish comments from the Fed (Fed) officials. As a result, the US Dollar Index hesitates in welcoming the bears and keeps the USD/CAD buyers hopeful.

Amid these pays, S&P500 Futures print mild losses of around 4,200 as it defends the previous day’s U-turn from the highest levels since August 2022. Further, the US 10-year and two-year Treasury bond yields also dropped to 3.65% and 4.23% in that order, which in turn portrays the market’s rush towards Treasury bonds for risk safety. It should be noted that Wall Street closed with minor losses on Friday as mixed concerns about the Fed and the US debt ceiling drama.

Moving on, the Canadian holiday may allow the USD/CAD pair traders less impulsive but the US debt ceiling announcements are the key to determining near-term pair moves.

Technical analysis

Despite the latest corrective bounce off the 100-DMA, USD/CAD justifies Friday’s Doji candlestick, as well as a steady RSI (14) line and bullish MACD signals. Even so, the pair is likely to remain sidelined between the 100-DMA and 200-DMA, respectively near 1.3510 and 1.3480.