USD/CAD Price Analysis – May 31, 2023
Daily Price Outlook
Ahead of Wednesday’s European session, USD/CAD experienced a surge in bids, testing a falling resistance line at 1.3650 that has held for two months. The Loonie pair’s action elucidates the market’s cautionary stance in the face of Canada’s first quarter (Q1) 2023 gross domestic product (GDP) data and major risk factors, notably updates on the resolution of the US debt ceiling and Fed projections.
USD/CAD is finding it hard to rally in the wake of oil prices declining near 1.3600 as the US dollar pulls back ahead of significant triggers. USD/CAD is dipping to 1.3600 in the early Asian session on Wednesday in anticipation of Canada’s crucial growth figures.
This is a reversal from Tuesday’s bounce from 1.3567, pulling back from 1.3613. Apprehension surrounding the US Senate’s vote on the debt ceiling deal may also be a snag for the Loonie pair. However, the quote is influenced by a dip in WTI crude oil prices.
Considerable attention is given to month-end rebalancing and the cautious approach preceding major data or events. Mixed US data might also pose a challenge to the dollar. As such, the US Dollar Index (DXY) reached its highest levels since mid-March on Tuesday before snapping a five-day winning streak and recording the largest daily loss since April 19, closing the North American session around 104.05.
Concerns about the ability of US policymakers to avert the looming default have led WTI crude oil to its lowest levels in four weeks, plunging more than 4.0% to register the biggest daily loss since May 2. Additionally, the US drive to tap into the Strategic Petroleum Reserve (SPR) and expectations of elevated oil production exert downward pressure on oil prices.
The US Conference Board’s (CB) Consumer Confidence Index dipped marginally to 102.30 in May from an upwardly revised 103.70 in April (from 101.30). According to additional details in the survey report, consumer inflation expectations for the coming year edged down from 6.2% in April to 6.1% in May.
Moreover, the US House Price Index rose by 0.6% MoM, outperforming the expected 0.2% and the prior 0.7% (revised from 0.5%), while the S&P/Case-Shiller Home Price Indices dropped to -1.1% YoY in March from 0.4% prior and -1.6% expected.
The Dallas Fed Manufacturing Business Index for May declined from -23.4 to -29.1, falling short of market estimates of -19.6.
USD/CAD Price Chart – Source: Tradingview
USD/CAD – Technical Outlook
During the Asian trading session, the USD/CAD pair displays a positive inclination, hovering around the 1.3635 mark. A glance at the four-hour chart reveals a surge of bullish activity for the Canadian dollar around the 1.3567 mark.
The existence of hammer and spinning top candlestick patterns at this level signifies a possible uptrend for the USD/CAD pair. Furthermore, this point coincides with another trendline observable on the four-hour chart, amplifying the bullish outlook.
In terms of upward movement, the Canadian dollar could face resistance near the 1.3658 mark. A successful rally above this mark could steer the Canadian dollar toward the next resistance level at 1.3698 and potentially even higher towards 1.3745.
On the downward side, immediate support is anticipated around the 1.3580 mark. Should the Canadian dollar dip below this mark, the next aim could be around 1.3500.
In conclusion, keen observation of the 1.3560 level is crucial, as a potential surge above it could provide a chance to take a long position. On the flip side, the vigilance of the 1.3603 level is equally important, as a failure to surge above it may offer an opportunity to enter a short position.
USD/CAD Price Analysis – April 20, 2023
Daily Price Outlook
USD/CAD is up 0.06% in 24 hours, trading at 1.3468. According to futures prices, there is an 85.7% possibility that the Fed will increase interest rates by 25 basis points at its meeting on May 3.
Bostic, the president of the Atlanta Fed, also stated that he favors one more 25bp rate increase followed by a break. According to Bostic, some of the Fed's duties may be accomplished by tightening lending conditions.
The US Dollar Index remained stable at 101.96 despite increasing worries that major central banks may raise interest rates again. The USD/CAD pair benefits from a slight rise in the US dollar.
It is a busy day on the US economic calendar when looking ahead to the US session. The key drivers will be the data for the April Philly Fed Manufacturing Index and the significant US jobless claims statistics.
Oil Continues to Decline as USD/CAD Reacts
Oil prices fell to a new monthly low on concerns that rising borrowing rates would slow economic development and reduce fuel demand.
WTI crude oil fell 1.68% to 77.91. Therefore, oil prices declined as markets revised their expectations for demand this year amid signs of slowing economic growth and growing wagers on more rate rises from significant central banks. The Dollar's strength also weighed on crude prices.
The commodity-linked Canadian Dollar is being held back from gaining due to the drop in oil prices. It is beneficial for USD/CAD.
Canada Prepares for Interest Rate Reduction
Canadian housing starts for March fell 11% domestically, slowing the trend that had been rising after the sharp rise in borrowing prices. Additionally, Canadian producer prices decreased 1.8% year-over-year after increasing 1.4% the previous year.
The y/y figure dropped into negative territory in the Canadian PPI statistics, highlighting the change in Canadian pricing pressures. Moreover, the drop confirms the Bank of Canada's prediction that CPI inflation will drop to 3% this summer and may pave the way for a rate reduction.
It wouldn't be surprising if the Canadian central bank led the way in rate cuts after being the first major central bank to raise rates this cycle. As risk aversion, amid concerns over rate cuts, puts pressure on the Canadian Dollar, USD/CAD rises. For further clarity, traders will focus on the BOC Gov Macklem Speaks later in the day.
Daily Technical Levels:
Support Resistance
1.3407 1.3492
1.3354 1.3522
1.3323 1.3576
Pivot Point: 1.3438
USD/CAD – Technical Outlook
The USD/CAD pair experienced a successful rally, breaking through the downward channel's resistance and paving the way to reach the primary anticipated positive target at 1.3500.
This strengthens the prospects for further gains in the coming sessions, with a breach of the mentioned level potentially extending the bullish wave towards 1.3590.
The 50-day exponential moving average (EMA50) underpins the price and bolsters the likelihood of additional gains in future sessions. However, breaking below 1.3410 would halt the current bullish momentum and push the price to test the critical support at 1.3350 before the next trend can be determined.
Related:
* EUR/USD Price Analysis – April 20, 2023