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.