USD/CAD: Bulls cheer WTI weakness, risk-off ahead of Canadian CPI

• USD/CAD seesaws near the five-week high.
• Speculations that Russia will backtrack from production cuts, surprise build in API stockpiles triggered WTI’s drop.
• US-China trade tussle gains additional roadblock after the US Senate passed the Hong Kong protest bill.

In addition to WTI’s drop to a 13-day low, a broad risk aversion also propels the USD/CAD pair to the five-week high while flashing 1.3280 as a quote during early Wednesday.

Prices of oil dropped after a surprise build in weekly stockpile numbers from the American Petroleum Institute (API) followed Reuters’ report that Russia might not support further production cuts during the December 05 meeting of the Organization of the Petroleum Exporting Countries’ (OPEC) and allies.

Elsewhere, the United States (US) and China kept struggling over phase one deal with the latest progress signaling the rollback of tariffs that were levied after the last deal rejection in May. Though, the US President Donald Trump kept on repeating threats on levy additional tariffs if China fails to sign a deal. Though, the US Commerce Secretary Wilbur Ross conveyed optimism surrounding the progress in recent appearance.

The latest on the US-China tussle over Hong Kong seems to trigger a broad weakness in the Commodity-linked currencies, like the Canadian dollar (CAD). The US Senate passed a bill to support Hong Kong protesters and oppose China against the usage of violence to suppress the demonstration. Even if the bill is yet to be through the House of Representatives, Chinese diplomats and the Hong Kong government jumped to criticize the US move.

With this, the US 10-year treasury yields drop to a two-week low of 1.75% whereas Asian stocks are turn red.

While risk sentiment can provide intermediate moves to the USD/CAD pair traders, October month inflation numbers and minutes of the Federal Open Market Committee’s (FOMC) latest monetary policy meeting will be the key to follow afterward. “TD looks for CPI inflation to  recover to 2.0% y/y  in October, up from 1.9% in September, with prices up 0.4% m/m (market: 1.9%, 0.3%, respectively). Part of the move is attributable to seasonal factors in telecom and apparel and while gasoline prices were unchanged in October, energy should exert a smaller drag on a year-ago basis. We also see modest downside risks to measures of core inflation owing to base-effects, but with the three currently averaging 2.07% y/y, this is unlikely to change the BoC’s outlook. We expect the FOMC minutes from the October meeting to elaborate on the Committee’s decision to ease rates while also sending a firm signal to set the bar high for additional accommodation. We anticipate discussions to touch upon what “material reassessment” of the outlook would lead the FOMC to shift its policy stance. The minutes may also provide further insights into the Framework Review debate,” says TD Securities ahead of the events.

Technical Analysis

USD/CAD buyers need to cross 1.3280/90 area including downward sloping trend line since May 30, coupled with 200-day Simple Moving Average (SMA) and 50%  Fibonacci  retracement level of May-July declines, to aim for 1.3350/55 region comprising the previous month’s high. Alternatively, a 38.2% Fibonacci retracement level of 1.3225 can act as immediate support.