USD/CAD Recovers Sharply From 1.3340 As Oil Stabilizes, US CPI In Spotlight

The USD/CAD pair has shown a solid recovery move from 1.3340 in the European session. The Loonie asset has some strength as the oil price has shown some stability after a sheer sell-off to nearly $67.00. Also, the US Dollar Index (DXY) is defending its immediate support of 103.20 but still looks vulnerable.

S&P500 futures have generated significant gains in Europe as the Federal Reserve (Fed) is expected to sound neutral on interest rate policy while delivering its monetary policy statement. The USD Index is struggling to keep its auction above 103.20 as the risk appetite theme has trimmed its appeal.

Later in the day, the United States Consumer Price Index (CPI) data (May) will be of utmost importance. Analysts at Credit Suisse expect the core CPI inflation to decline to 0.3% MoM in May, a welcome step lower after five consecutive months of registering 0.4% MoM. The YoY reading is likely to drop to 5.2%. Headline inflation is expected to decline to 0.1% MoM.

The effect of a weak USD Index can also be seen in US Treasury yields. The yields on 10-year US Treasury bonds have dropped to nearly 3.72%.

Meanwhile, the Canadian Dollar is showing resilience as investors hope that the Bank of Canada (BoC) will raise interest rates again to tighten its grip over stubborn inflation. Recent Canadian Employment data remained weak and posted a higher Unemployment Rate than expected after a few months. The street believes that a one-time weakness in the Employment numbers is insufficient to force BoC Governor Tiff Macklem to turn neutral again.

Oil prices were heavily sold on the oil front as Eurozone has joined China and is expected to show poor demand ahead due to deepening fears of recession. It is worth noting that Canada is the leading oil exporter to the United States, and lower oil prices would impact the Canadian Dollar.

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