USD/CAD Price Analysis – March 05, 2024

Daily Price Outlook

During the Asian session, the USD/CAD currency pair maintained its upward trend and remained well bid around the 1.3595 level. However, the reason for its upward trend can be attributed to multiple factors, including the renewed strength of the US dollar. Despite disappointing US economic data, the US dollar has been declining, but it recently gained traction following a hawkish stance by the Federal Reserve. Additionally, dovish remarks from the Bank of Canada governor were seen as a key factor that undermined the Canadian dollar and contributed to the gains in the USD/CAD currency pair. Furthermore, the decline in crude oil prices further undermined the Canadian dollar and lent support to the USD/CAD currency pair.

Federal Reserve's Hawkish Stance Supports USD Strength

On the US front, the Federal Reserve is expected to keep interest rates steady at its March meeting, between 5.25% and 5.5%. The market predicts the first rate cut in June, but this could change if inflation slows or wages keep rising. Fed President Raphael Bostic stated that there's no rush to lower rates due to a strong economy and job market. Central banks, like the Fed, adjust their stance based on economic data, leading to shifts between dovish and hawkish tones. Therefore, this recent hawkish statement helped the US dollar gain strength and supported the USD/CAD currency pair.

Bank of Canada's Dovish Signals and Oil Price Decline Weaken CAD

On the Canadian side, the Bank of Canada (BoC) is expected to maintain its current interest rate of 5.0% during the upcoming meeting. Investors are predicting an 80% likelihood of the first rate cut happening around June. During the press conference, clues regarding the timing of rate cuts could be disclosed. If the BoC governor expresses dovish sentiments, indicating a cautious or accommodative monetary policy stance, it could weaken the Canadian Dollar (CAD). This happens because dovish remarks suggest potential future interest rate cuts, which can reduce the attractiveness of the currency for investors, leading to selling pressure on the CAD.

Hence, the dovish signals from the BoC, hinting at potential rate cuts, could weaken the Canadian Dollar (CAD) against the US Dollar (USD), possibly leading to upward pressure on the USD/CAD currency pair.

On the other hand, decline in the crude oil prices could further support the USD/CAD currency pair by undermining the Canadian dollar. Crude oil prices dropped for a second consecutive day on Tuesday as investors remained worried about reduced consumption, leading to the decline in oil prices.

USD/CAD - Technical Analysis

The USD/CAD pair showcased a modest uptick on March 5, indicating slight bullish sentiment in the market. The currency pair closed the session at 1.35796, marking a 0.05% increase. This movement is reflective of the ongoing adjustments in the currency markets, as traders align their positions based on the latest economic indicators and geopolitical developments.

The currency's pivot point at 1.3551 serves as a critical juncture, with immediate resistance observed at 1.3616. Further resistance levels are noted at 1.3674 and 1.3741, suggesting potential ceilings for upward movements. Conversely, the immediate support level at 1.3494, followed by 1.3427 and 1.3370, indicates where buyers might step in to uphold the currency's value.

Technical indicators offer a nuanced view of the market dynamics. The Relative Strength Index (RSI) stands at 58, hinting at neither overbought nor oversold conditions, thereby providing room for further movement in either direction. The Moving Average Convergence Divergence (MACD) shows a slight divergence, with a value of -0.0002 against a signal of 0.0009, suggesting mixed signals about the market's direction. However, the close proximity of the 50-Day Exponential Moving Average (EMA) at 1.3572 to the current price underlines the currency pair's stability in the near term.