USD/CAD bulls flirt with 1.3600 as Oil edges higher, US Dollar rises amid mixed feelings about US default

• USD/CAD renews three-week high but stays sidelined of late.
• Traders rush to US Dollar in search of risk safety amid anxiety about US debt ceiling extension talks.
• Oil price struggles to justify surprise draw in inventories, fears of less supplies amid firmer USD.
• Risk catalysts, second-tier data may entertain Loonie traders amid cautious markets.

USD/CAD seesaws at the highest levels in three weeks, marked recently, as bulls prod the 1.3600 mark during early Thursday amid broad US Dollar strength. In doing so, the Loonie pair pays little attention to the mildly bid WTI crude oil price, Canada’s key export item.

That said, the US Dollar Index (DXY) rises to a fresh high in seven weeks, to 104.00 amid fears of the US default as the US policymaker’s inability to deliver a debt ceiling extension deal and the looming long weekend for the House Representatives, the fears of US default push global rating agencies like Fitch and Moody’s to turn cautious about the US credit rating status. Late on Wednesday, Moody’s warned about the US outlook change while Fitch put US’ AAA on Rating Watch Negative status.

Recently, the White House responded to the rating institutes’ pessimism by saying that brinkmanship over the debt limit does serious harm to businesses and American families, raises short-term borrowing costs for taxpayers, and threatens the credit rating of the US. “Tonight’s warning underscores the need for swift bipartisan action by Congress to raise or suspend the debt limit and avoid a manufactured crisis for our economy,” adds the White House.

Apart from the US default fears, mixed Fed concerns also allow the US Dollar to remain firmer. That said, the Minutes of the latest Federal Open Market Committee (FOMC) Meeting suggested that the policymakers aren’t on the same table as some suggest it is appropriate to hike the rates while others advocate for a policy pivot. Following that, Atlanta Fed President Raphael Bostic said, “‘We’re right at the beginning of the hard part’ of taming inflation.” On the same line, Federal Reserve Governor Christopher Waller mentioned that he doesn’t support stopping rate hikes unless getting clear evidence that inflation is moving down toward the 2% objective.

Elsewhere, WTI crude oil stays defensive above $74.00 even after the Energy Information Institute (EIA) reported a massive draw in the weekly inventory levels. That said, the EIA Crude Oil Stocks Change came in at -12.456M versus 0.775M market forecasts and 5.04M previous readings. Apart from the EIA inventories, a warning from Saudi Arabia also fuelled the WTI prices toward a refreshing three-week high previously. That said, Saudi Arabia's energy minister said short-sellers betting oil prices will fall should "watch out" for pain.

Against this backdrop, the S&P500 Futures snap a two-day downtrend by portraying a corrective bounce from the two-week low to 4,138 by the press time, up 0.35% intraday at the latest. On the other hand, the US 10-year and two-year Treasury bond yields remain firmer at the highest levels since mid-March, close to 3.75% and 4.40% as we write.

Looking ahead, a slew of the US data including weekly Jobless Claims, the Chicago Fed National Activity Index and Pending Home Sales will decorate the calendar and entertain USD/CAD traders. Though, major attention will be given to the US debt ceiling talks as negotiators brace for a long weekend.

Technical analysis

A daily closing beyond an 11-week-old descending resistance line, now immediate support around 1.3560, keeps the USD/CAD buyers hopeful.