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  • Manufacturing Sales in Canada declined for fourth straight month in December.
  • US Dollar Index renewed multi-month highs near 99.50.
  • Coming up on Wednesday: Consumer Price Index data from Canada.

The USD/CAD pair rose to a fresh six-day high of 1.3280 in the early trading hours of the American session but started to retrace its daily rally as the greenback lost some strength. As of writing, the pair was trading at 1.3255, up 0.15% on a daily basis.

The data published by Statistics Canada on Tuesday showed that Manufacturing Sales in December declined by 0.7% and missed the market expectation for an expansion of 0.5% to weigh on the CAD. 

US Dollar Index retreats from highs

On the other hand, the USD capitalized on the NY Fed’s Empire State Manufacturing Survey and helped the bullish momentum remain intact. The headline General Business Conditions Index in February jumped to 12.9 from 4.8 and January to lift the US Dollar Index (DXY) to its highest level since early October at 99.47.

However, a more than 2% drop witnessed in the 10-year US Treasury bond yield caused the DXY to lose its traction and caused the pair to pull away from its highs. As of writing, the DXY was still up 0.2% on the day at 99.35.

In the meantime, the barrel of West Texas Intermediate (WTI) recovered a portion of its early losses to help the commodity-related CAD show some resilience. At the moment, the WTI is trading at $51.65, erasing more than 1% on the day.

On Wednesday, the inflation report from Canada will be looked upon for fresh impetus. Previewing the CPI data, “a softening global growth narrative due to the viral outbreak and softening core CPI will keep CAD on the defensive and USD in demand,” TD Securities analysts said. “USDCAD dips towards 1.3220 (~200dma) should offer support while 1.3305 (2020 highs) mark notable resistance.”

Technical levels to watch for