USD/CAD Price Analysis – Feb 20, 2024

Daily Price Outlook

Despite the renewed strength in crude oil, the USD/CAD pair maintained its upward trend and remained well-bid around the $1.3510 level. However, the upward trend was mainly reinforced by the renewed strength of the US dollar, which gained traction on the back of upbeat US data. In contrast, stronger crude oil prices tend to underpin the Canadian dollar, which was seen as a key factor that could cap further gains in the USD/CAD pair. Moving on, traders seem hesitant to place any strong positions as Canadian inflation data will be in the spotlight on Tuesday and could trigger volatility in the market ahead of the FOMC Minutes.

Positive Momentum for US Dollar Supporting USD/CAD Pair

On the US front, the broad-based US dollar extended its gains on the day and was being buoyed by robust inflation data. In the meantime, the trading on the day is subdued as US markets were closed for Presidents' Day. Investors are now awaiting the release of the Federal Open Market Committee meeting minutes for clues on future interest rate moves. However the analysts anticipate the Fed may start cutting rates from July 2024, with a 53% chance of a 0.25% reduction by June. Despite recent dovish remarks from Fed officials like Mary C. Daly and James Bullard, the dollar retained its strength.

Therefore, the positive momentum for the US dollar could continue to support the USD/CAD pair as investors await further clarity on future interest rate decisions from the Federal Reserve.

Canada's January CPI Release and Long-Term Factors Limiting Gains for USD/CAD Pair

On the other hand, Canada's January Consumer Price Index (CPI) is set for release on Tuesday, expected to dip from 3.4% YoY in December to 3.3% in January. Meanwhile, the Bank of Canada (BoC) has pointed out the significant role housing has played in propping up inflation. Markets don't foresee the BoC cutting interest rates before its June monetary policy decision. Furthermore, the surge in crude oil prices could support the Canadian dollar, as Canada is a major oil exporter to the US. The Canadian Dollar (CAD) tends to react strongly to oil price changes, potentially limiting gains for the USD/CAD pair.

Hence, the factors mentioned, including expectations of steady interest rates by the Bank of Canada and the potential support from rising oil prices for the Canadian Dollar, could limit gains for the USD/CAD pair.

USD/CAD - Technical Analysis

The USD/CAD pair has witnessed a marginal increase of 0.12%, currently trading at 1.35078, signaling a slight bullish momentum in early trading hours. This move reflects a cautious optimism in the market, with the pair navigating above the pivotal 1.3503 mark, which serves as today's technical fulcrum. The immediate resistance levels are set at 1.3568, 1.3657, and 1.3731, outlining potential hurdles that could cap further gains. Conversely, support is found at 1.3411, with additional safety nets at 1.3343 and 1.3257, marking zones where buyers might step in to stabilize or push the pair higher.

The Relative Strength Index (RSI) at 54 indicates a slightly bullish sentiment, suggesting that the market is neither overbought nor oversold, providing room for potential upward movement. Moreover, the MACD’s positive divergence from its signal line at 0.00013 against -0.00019 hints at growing bullish momentum, reinforcing the likelihood of an upward trajectory.

The 50-Day Exponential Moving Average (EMA) at 1.3493 further supports this bullish outlook, as the pair's current price action remains above this key indicator. Given these technical indicators, the market's orientation seems inclined towards a bullish bias, contingent on maintaining momentum above the 1.34925 pivot. As such, entering a long position above this threshold with a target of 1.35437 and a stop loss set at 1.34527 could capitalize on the anticipated ascent, adhering to a disciplined risk management strategy.