With recovering oil prices and a struggling US Dollar, USD/CAD is declining towards 1.3200 before Canada’s PMI

Amid the recovery in oil prices and ongoing struggles of the US Dollar, the USD/CAD pair is experiencing a downward trend, moving towards the 1.3200 mark ahead of the release of Canada’s PMI. The USD/CAD has slid to 1.3235 as traders of the Loonie pair show determination to break through the stagnation that has lasted for three days. This movement was observed during the early European trading hours on Tuesday, following a period of inactivity during the Asian trading hours.

The recent losses experienced by the Loonie pair can be attributed to a surge in Canada’s principal export commodity, coupled with a pullback in the US Dollar Index (DXY). WTI crude oil, for instance, recorded slight gains at around $70.30, reflecting the impact of recent announcements from Saudi Arabia and Russia hinting at further supply cuts. These gains in the energy benchmark are also fueled by the anticipated increase in oil demand from the US and China, as these two economic powerhouses strive to resolve their differences.

Conversely, the DXY hit a new intraday low near 102.90, representing a daily decline of 0.07%. This movement was triggered by European traders’ reactions to the disappointing US ISM Manufacturing PMI data for June. The private activity gauge plunged to its lowest level in three years and remained below the 50.0 thresholds for the seventh consecutive month, registering a reading of 46.0 against an expected figure of 47.2 and a previous reading of 46.9. Additionally, the S&P Global Manufacturing PMI for June confirmed a 46.3 figure, the lowest in five months, while Construction Spending rose by 0.9% MoM for May, compared to the expected 0.5% and a previous reading of 0.4%.

It’s worth mentioning that the market’s positioning for key Canadian data/events, along with the US holiday, have contributed to the losses in the USD/CAD pair. Crucial data to watch include the Bank of Canada’s (BoC) Business Outlook Survey and June’s readings of S&P Global Manufacturing PMI for better directionality.

Moreover, the inversion in the US Treasury bond yields curve has raised concerns about a possible recession, adding to the anxiety surrounding Sino-American relations. As US Treasury Secretary Janet Yellen visits Beijing for diplomatic talks, these factors continue to affect market sentiment and establish a support level for the USD/CAD price.