USD/CAD Price Analysis – March 19, 2024

Daily Price Outlook

During the early European session, the USD/CAD currency pair maintained its upward trend and remained well bid around the 1.3595 level. The upward trend can be attributed to several factors, including the strength of the US dollar. The US dollar has gained traction following a hawkish outlook by the Federal Reserve. Additionally, a mild decline in crude oil prices was seen as a key factor that undermined the Canadian dollar and contributed to the gains in the USD/CAD currency pair.

Impact on USD/CAD Pair Amidst Hawkish Fed Outlook and Economic Data

On the US front, the broad-based US Dollar maintained its upward trend and edged higher on the day amid the Fed hawkish outlook. Investors are eagerly waiting for the US Federal Reserve (Fed) to announce its decision on interest rates this Wednesday. It's expected that the Fed will keep interest rates high due to recent inflationary pressures. However, the previously released data, particularly the higher-than-expected Core Producer Price Index and US PPI, suggests increased inflation pressures, which supports the hawkish Fed outlook and strengthens the US dollar.

It should be noted that the probability of a rate cut in March is only 1.0%, and slightly higher at 8.7% for May, according to the CME FedWatch Tool. The likelihood of rate cuts in June and July is even lower, at 55.1% and 73.7% respectively.

On the data front, the US Michigan Consumer Sentiment Index for March dropped to 76.5 from 76.9, which was unexpected. Meanwhile, Industrial Production slightly increased by 0.1% in February, better than expected. The Core Producer Price Index stayed steady at 2.0% year-over-year in February, higher than expected. US PPI rose by 1.6% year-over-year and 0.6% month-over-month, surpassing forecasts, indicating increased inflation pressures.

Therefore, the unexpected drop in consumer sentiment and the higher-than-expected inflation data could potentially strengthen the US dollar and weigh on the Canadian dollar, leading to upward pressure on the USD/CAD pair.

Impact of Oil Prices and Fed Decision on USD/CAD Pair

On the other side, crude oil prices moved down because Russia might start producing more oil, and industries like airlines aren't using as much fuel as usual. Also, traders are being cautious before the Federal Reserve decides on U.S. interest rates. This drop in oil prices made the Canadian dollar weaker. Hence, the USD/CAD pair is likely to strengthen due to lower crude oil prices and a weakened Canadian dollar amid increased oil production by Russia and uncertainty over US interest rates.

USD/CAD - Technical Analysis

The USD/CAD pair has shown resilience, marking a modest increase of 0.12% to 1.35649. This uptick suggests a positive sentiment towards the US dollar against the Canadian dollar, as the pair navigates through key technical levels. The currency's pivotal point is located at 1.3525, serving as a fundamental marker for the pair's short-term direction. Resistance levels are established at 1.3591, 1.3624, and 1.3647, marking potential hurdles for upward movements. Conversely, support is found at 1.3486, with additional levels at 1.3456 and 1.3421, where the pair might find buying interest.

A noteworthy observation comes from the RSI at 64, indicating momentum leaning towards the overbought territory but still suggesting room for further gains. The emergence of a bullish engulfing candlestick pattern above the 1.3550 level reinforces the prospect of a continuing uptrend. Furthermore, the 50-day EMA at 1.3519, now below the current price, acts as a support level, bolstering the bullish case for the USD/CAD pair.

Given these dynamics, a strategic entry for a long position is advised above 1.35498, targeting a move towards 1.35913 for potential profits. A stop loss at 1.35173 is recommended to mitigate risk, aligning with a prudent trading strategy.

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