USD/CAD displays a dead cat bounce from 1.3800, Canada CPI in focus

• USD/CAD has resumed the downside journey after the termination of the short-lived pullback.
• The emergence of the risk-on impulse has weakened the safe haven’s appeal.
• A bleak economic outlook is weighing pressure on oil prices.

The USD/CAD pair has displayed a less-confident pullback after printing an intraday low of 1.3812 in the Asian session. The asset is expected to resume its downside momentum after the termination of the pullback as the risk impulse rebounded after turmoil on Friday. S&P500 is withholding its gains recorded on early Monday despite rising bets for a hawkish Federal Reserve (Fed).

The US dollar index (DXY) is displaying a subdued performance as the appeal for safe-haven has been trimmed. Due to a light US economic calendar, the focus will remain on commentaries from Fed policymakers and geopolitical tensions. The 10-year US Treasury yields are also oscillating below the critical hurdle of 4%.

This week, Canada’s inflation data will be of utmost importance. The headline Canada Consumer Price Index (CPI) figure is expected to decline to 6.8% from the prior release of 7.0%. Also, the core CPI data may trim by 20 basis points (bps) to 5.6%. The Bank of Canada (BOC) is accelerating its interest rates vigorously and has reached 3.25% as price pressures are deteriorating the economic fundamentals for the longer term. The central bank is entirely focusing on bringing price stability and ignoring current economic prospects.

On the oil front, oil prices have rebounded after printing a fresh two-week low at $84.72. Investors are discounting the bleak growth outlook amid escalating policy tightening measures by the central banks. Apart from that, the continuation of the no-tolerance approach towards Covid-19 by China has kept a lid on the oil demand. It is worth noting that Canada is a leading exporter of oil to the US and weak oil prices are weakening the Canadian dollar.