The USD/CAD currency pair is on the rise, reaching 1.3730 in Thursday’s trading session. This uptick reflects a strengthening Canadian Dollar (CAD) driven by market expectations of an interest rate cut by the Bank of Canada (BoC) in June.
Market Dynamics:
- Anticipated BoC Rate Cut: Investors anticipate the BoC to begin lowering interest rates in June, creating a divergence between the BoC’s and the Federal Reserve’s (Fed) monetary policies.
- Strong Loonie: The CAD is holding onto its gains despite a slight pullback in the US Dollar. This suggests an underlying strength in the Canadian currency.
- US Dollar Pullback: The US Dollar Index (DXY) is correcting after reaching a two-week high, but its near-term outlook remains positive due to uncertainty surrounding the upcoming US core PCE inflation data.
Inflation Data in Focus:
- US PCE Data: The release of core PCE inflation data for the US on Friday is crucial, as it will influence expectations for potential Fed rate cuts in September.
Technical Analysis (USD/CAD):
- Descending Triangle Breakout: The USD/CAD pair experienced a breakout from a descending triangle chart pattern on the daily timeframe, suggesting a potential bullish trend.
- Moving Averages and RSI: Upward-sloping 20-day and 50-day EMAs and an RSI hovering around 40-60 indicate a possible continuation of the uptrend, but also some indecisiveness among market participants.
Support and Resistance:
- Upside Potential: A break above the April 30th high of 1.3785 could open doors for further gains towards the April 17th high of 1.3838 and potentially 1.3900.
- Downside Risk: If the pair falls below the May 3rd low of 1.3600, it could test the April 9th low of 1.3547 and the psychological support level of 1.3500.
The USD/CAD pair is currently reflecting anticipation of a policy divergence between the BoC and the Fed. The upcoming US inflation data will be a key factor influencing the future trajectory of this currency pair. Technically, a breakout from the descending triangle suggests a potential bullish trend, but the RSI indicates some market uncertainty.
