The Canadian Dollar (CAD) recovered on Wednesday, halting a five-day decline fueled by a hawkish Fed stance and dovish BoC outlook. A temporary retreat in the US Dollar, driven by improved risk sentiment and easing yields, provides some respite for the CAD.
Key Factors:
- Softer USD: Positive market mood and lower US yields weigh on the safe-haven US Dollar, allowing the CAD to regain some ground.
- Fed vs. BoC: The diverging stances of the Federal Reserve (Fed) and Bank of Canada (BoC) continue to pose challenges for the CAD. The Fed’s hawkishness and the BoC’s expected June rate cuts create downward pressure.
- Oil Prices: Falling Oil prices further weigh on the commodity-linked Loonie.
Market Movers:
- Hawkish Fed: Fed Chair Powell’s recent emphasis on maintaining restrictive policy to combat inflation limits CAD gains.
- Rate Cut Expectations: The BoC is expected to begin cutting rates in June, adding to the CAD’s headwinds.
- EIA Crude Oil Data: Higher-than-expected Crude Oil stocks put further pressure on Oil prices and the CAD.
Technical Analysis:
- Corrective Pullback: USD/CAD experiences a short-term pullback amid overbought conditions, but the broader USD trend remains intact.
- Key Support: Bears are challenged at the 1.3785 level, with further support at the intra-week low (1.3728) and the 38.2% Fibonacci retracement (1.3705).
- Resistance: Immediate resistance lies at 1.3845, followed by November 2023 high at 1.3900.
