USD/CAD eases on the way to 1.2700 as US dollar strength defeats oil bulls
- USD/CAD bulls take a breather following the heaviest daily jump in a week.
- US dollar strength buoyed pair bulls, weighed on oil prices initially rose on hurricane fears.
- Softer Canadian data contrasts firmer US economics to propel the quote.
- US consumer-centric data may offer intermediate moves ahead of next week’s key FOMC.
USD/CAD consolidates the heaviest daily jump in over a week around 1.2680 during the early Friday morning in Asia. Firmer US dollar and weaker oil prices offer dual support to the latest run-up. However, cautious sentiment ahead of today’s preliminary reading of the US Michigan Consumer Sentiment Index for September and the next week’s Fed meeting, not to forget a lack of major data/event by the press time, challenge the quote’s latest moves.
US Dollar Index (DXY) posted the strongest daily gains in a month the previous day after the US Retail Sales for August and Philadelphia Fed Manufacturing Index for September renewed Fed tapering concerns. The US Retail Sales MoM jumped to the highest in five months while crossing expectations of -0.8% with +0.7% figures. Further, the Philly Fed gauge also rose strongly to 30.7 versus 19 forecast and 19.4 prior, marking the strongest figures in three months.
Read: Fed Preview: Three ways in which Powell could down the dollar, and none is the dot-plot
Also contributing to the US dollar strength is the market’s rush for risk-safety amid the US-UK-Australia security pact and the US hosting of the UK, India, Australia and Japan for diplomatic talks the next week. These moves are rumored as against China and weigh on the market sentiment.
To portray the mood, Wall Street closed mixed but the US 10-year Treasury yields rose 3.2 basis points (bps) to 1.336% by the end of Thursday’s North American session.
At home, Canada Housing Start for August, Wholesale Sales for July and ADP Employment Change for August all three came in softer and strengthened the USD/CAD prices.
Adding to the pair’s strength is the weakness in the oil prices, mainly due to the US dollar’s inverse relations with the commodities as well as easing fears of the hurricane. Canada’s main export item rose initially on Thursday on the threat to energy production in the Gulf of Mexico from Hurricane Nicholas before reversing the gains afterward.
While the fears of the tapering announcement during the next week’s Federal Open Market Committee (FOMC) favors USD/CAD bulls, today’s preliminary readings of the US Michigan Consumer Sentiment Index for September, expected 72.2 versus 70.3, may offer intermediate directions to the pair traders.
Read: US Michigan Consumer Sentiment Preview: Markets will have to look hard for positive signs
Technical analysis
Although 200-day EMA surrounding 1.2600 defends USD/CAD bulls since September 07, the 1.2700 mark repeatedly tames the upside moves.