USD/CAD defends 1.2600 amid downbeat oil prices, sluggish markets

• USD/CAD keeps rebound from two-week low, picks up bids of late.
• Oil prices print mild daily losses despite risk-on mood, price-positive API inventories.
• Canadian GDP disappoints, US ADP, ISM data awaited ahead of NFP.
• Market sentiment improves on easing covid figures, chatters over ECB action.

USD/CAD holds onto the previous day’s recovery from a fortnight low while picking up bids to 1.2617 during Wednesday’s Asian session. In doing so, the Loonie pair reacts to the downbeat Canadian GDP and oil prices while paying a little heed to the US dollar’s broad weakness and slightly risk-on markets.

WTI oil prices extend Tuesday’s pullback from a three-week high, down 0.10% around $68.30 by the press time. The black gold bears the burden of tapering talks and covid woes while ignoring the latest easing in virus infections in Asia–Pacific, hurricane-led halt in production and depleting inventories. While portraying the weekly industry stockpile figure, the American Petroleum Institute (API) mentioned a reduction of 4.045 million barrels versus the prior draw of 1.622 million barrels for the period ended on August 27.

It’s worth noting that Canada's Q2 GDP dropped way below +2.5% market consensus and +5.5% downwardly revised figures to -1.1% on QoQ.

Talking about market sentiment, firmer Eurozone inflation renew talks of reduction in bond purchases from the European Central Bank (ECB). The same helped the US dollar to rebound after dropping to the fresh low since August 06.

Even so, recently easy covid cases and vaccine optimism joins Fed policymakers’ efforts to tame hawks help the optimists, underpinning the USD weakness.

That said, the US 10-year Treasury yields snapped a two-day downtrend to add 2.3 basis points (bps) to 1.307% whereas the US Dollar Index (DXY) dropped to the lowest since August 04, becomes consolidating gains to 92.65 by the end of Tuesday’s North American trading session.

Moving on, US employment-related data and ISM Manufacturing PMI for August will be important for the near-term market direction ahead of Friday’s jobs report. Also important will be the official weekly oil inventory data from the US Energy Information Administration, expected -2.833M versus -2.979M, as well as Canadian Markit Manufacturing PMI for August, forecast 56.4 versus 56.2.

Read: ISM Manufacturing PMI Preview: Why it could be the trigger for a big greenback comeback

Technical analysis

Although 10-DMA guards the quote’s immediate upside around 1.2665, USD/CAD sellers remain skeptical unless witnessing a clear downside break of the two-month-old support line, close to 1.2570, as well as 200-DMA surrounding 1.2535.