USD/CAD drops to 1.3175 but rebounds to 1.3200, remains sideways

• USD/CAD retreats from highest in four days, continues to trade near monthly lows.
• Loonie supported by risk sentiment and higher crude oil prices.

The USD/CAD is falling on Tuesday amid a weaker US dollar and higher crude oil prices. On European hours, the pair peaked at 1.3239, the highest level since Thursday and then turned to the downside. It bottomed at 1.3175 and is hovering around 1.3200 as of writing, down 20 pips for the day.

The loonie managed to turn positive versus the US dollar despite the pullback in equity markets. The improvement in the relationship between the US and China boosted market sentiment earlier today, but then it faded. Actually, at the moment, US stocks are mostly lower. The Dow Jones losses 0.65% and the Nasdaq gains 0.10%.

A key support to the Canadian dollar on Tuesday is the rally in crude oil prices. The West Texas Intermediate is up 1.55%. It reached the highest intraday level since March earlier on Tuesday, before pulling back. The hurricane Laura is headed toward the Gulf Coast.

Economic data from the US was mostly ignored by market participants. The numbers showed two surprises: A sharp rise in New Home Sales in July and a significant drop in Consumer Sentiment to the lowest in six years in August.

In a few minutes, Bank of Canada Deputy Governor Lawrence Schembri will deliver a speech. His words could trigger some moves. The BoC launched on Monday a public consultation on inflation targeting; it is done every five years.

Technical outlook

The USD/CAD continues to trade sideways in the short-term, with the vital support seen around 1.3120/30, the August bottom (lowest since January). On the upside, the 1.3235/40 is the critical resistance; a break above would likely lead to more gains and a test of the 20-day moving average at 1.3278.