CFD Trading Rate US Dollar vs Canadian Dollar (USDCAD)

• USD/CAD gained ground as the US Dollar struggled after Fed Powell dismissed the speculation of further rate hikes.
• The improved market sentiment supports risk-sensitive currencies like the Canadian Dollar.
• The uptick in the WTI price supported the CAD as Canada is the largest Oil exporter.

USD/CAD extends its losses for the second successive day, hovering around 1.3710 during the European session on Thursday. This improved risk appetite supports risk-sensitive currencies like the Canadian Dollar (CAD), consequently, undermining the USD/CAD pair.

On Wednesday, the Federal Reserve (Fed) decided to maintain interest rates at the range of 5.25%-5.50% in May’s meeting, as highly expected. Additionally, the US Dollar (USD) faced challenges after Federal Reserve Chairman Jerome Powell dismissed the likelihood of a further interest rate hike during the Federal Open Market Committee (FOMC) conference, as per a Reuters report.

Fed Chair Powell emphasized that progress on inflation has recently stalled, indicating that it would require more time than previously anticipated for the Fed to be confident in reaching its 2% target. Powell suggested that if strong hiring continues and inflation remains subdued, it would warrant delaying rate cuts.

In Canada, according to a Reuters report on Wednesday, Bank of Canada (BoC) Governor Tiff Macklem said that the BoC is reaching a point where it could begin reducing interest rates from their current 23-year highs. Speaking to the Senate Banking Committee, Macklem mentioned that inflation was declining and Canadians were eager to know when the central bank would initiate interest rate cuts.

Additionally, the uptick in crude Oil prices supported the Loonie Dollar as Canada is the largest oil exporter to the United States (US). West Texas Intermediate (WTI) Oil price inches higher to near $79.30 per barrel, by the press time. The prices of crude Oil have rebounded on the anticipation that lower levels could encourage the United States, the world's largest crude consumer, to begin replenishing its strategic reserve.

• USD/CAD loses ground near 1.3730 on the softer USD on Thursday. 
• The BoC Governor said the central bank is  “getting closer” to rate cuts.
• The Fed has not changed its key interest rates and expressed more caution than previously about possible interest rate cuts. 

The USD/CAD pair extends its downside around 1.3730 during the early Asian trading hours. The downtick of the pair is backed by the weaker US Dollar Index (DXY) to 105.75. The US Federal Reserve (Fed) kept its benchmark short-term borrowing rate in a targeted range between 5.25% and 5.50% and expressed more caution than before over future interest rate cuts. Later in the day, the usual US weekly Initial Jobless Claims and March’s Goods Trade Balance are due.

Late Wednesday, Bank of Canada (BoC) Governor Tiff Macklem reiterated that the Canadian central bank is confident that inflation will continue to decline, adding that the BoC is  “getting closer” to rate cuts. Macklem added that the BoC isn't beholden to following the Federal Reserve's (Fed) playbook as higher rates in Canada are having ‘more traction’ than in the US. 

Traders place more bets that the Bank of Canada (BoC) might cut interest rates in June as Canada's economy weakened in the first quarter of this year. Canada’s GDP grew at a slower pace of 0.2% MoM in February, compared to the previous reading of  0.5%, weaker than the market expectation of 0.3% expansion. Elsewhere, the Canadian Manufacturing PM dropped to 49.4 in April and 49.8 in March, below the market consensus of 50.2, according to S&P Global on Wednesday. 

On the USD’s front, the US Fed kept rates unchanged for a sixth consecutive meeting in the 5.25%–5.50% range, as widely expected by market participants. Fed Chair Powell sounded more cautious than the previous reading, arguing for more patience on the policy front. The USD failed to capitalize following the monetary policy meeting as the bar was pretty high for an uber-hawkish pivot. However, the higher-for-longer rate narrative in the US could provide some support to the USD and cap the downside for USD/CAD. 

 

• USD/CAD may continue to advance as technical analysis suggests a resurgence of bullish sentiment.
• A break above the 1.3800 level might propel the pair to revisit its five-month high of 1.3846.
• The pair could find support around the psychological level of 1.3700 and the 23.6% Fibonacci retracement level of 1.3688.

USD/CAD trades around 1.3780 during the early European hours on Wednesday, hovering within an ascending channel on the daily chart. The 14-day Relative Strength Index (RSI) also positioned above 50, indicating a resurgence of bullish sentiment.

Additionally, the Moving Average Convergence Divergence (MACD) line is above the centerline, suggesting bullish momentum, although it remains below the signal line. Traders might seek confirmation from the MACD, a lagging indicator, to validate the trend direction.

The USD/CAD pair could encounter resistance around the psychological level of 1.3800. If it surpasses this level, it may revisit its five-month high of 1.3846, followed by the upper boundary of the ascending channel near 1.3899, the highest level not seen since November.

Conversely, on the downside, the USD/CAD pair could navigate the region around the psychological level of 1.3700, followed by the 23.6% Fibonacci retracement level of 1.3688, which is drawn between the levels of 1.3178 and 1.3846. A break below this level could lead the pair to test the lower boundary of the channel around the 1.3640 level.

USD/CAD: Daily Chart

• USD/CAD trades on a positive note near 1.3778 in Wednesday’s early Asian session. 
• The Fed is expected to leave its benchmark rate unchanged on Wednesday. 
• The Canadian economy expanded by 0.2% MoM in February, compared to the previous reading of  0.5%. 

The USD/CAD pair holds positive ground around 1.3778 on Wednesday during the early Asian trading hours. The weaker-than-expected Canada’s February Gross Domestic Product (GDP) data weighs on the Loonie. Meanwhile, the firmer US Dollar (USD) above 106.30 remains to support the pair for the time being. 

Investors will closely monitor the US Federal Reserve's (Fed) interest rate decision on Wednesday, with no change in rate expected. Also, Fed Chair Jerome Powell’s press conference might offer some hints about the future monetary policy outlook. The higher-for-longer rate narrative might boost the Greenback further and create a tailwind for the USD/CAD pair. According to the CME FedWatch Tool, financial markets are now pricing in nearly 44% chance that the Fed will cut the rate in September, down from 60% at the start of the week.  

Apart from the Fed rate decision on Wednesday, the US ADP Employment Change, US ISM Manufacturing PMI, and Canadian S&P Global Manufacturing PMI will be due. Data released on Tuesday showed that the US Conference Board's Consumer Confidence Index for April fell to the lowest level since July 2022 at 97.0 from 103.1 in March. Furthermore, the Employment Cost Index in the US rose by 1.2% YoY in the first quarter of 2024, compared to a 0.9% rise in Q4 of 2023. This figure came in above the market consensus of 1.0%.

On the CAD’s front, Canada's economy weakened in the first quarter of this year, prompting expectations that the Bank of Canada's (BoC) might cut interest rates in June. The Canadian Gross Domestic Product (GDP) grew at a slower pace of 0.2% MoM in February, compared to the previous reading of  0.5%, weaker than the market expectation of 0.3% expansion, according to Statistics Canada. Meanwhile, the decline of oil prices exerts some selling pressure on the commodity-linked Loonie, as Canada is the largest crude oil exporter to the US. 

• USD/CAD moves higher above 1.0700 on multiple tailwinds.
• The US Dollar rebounds after upbeat Q1 Employment Cost Index data.
• Weaker-than-expected Canadian GDP weighs on the Canadian Dollar.

The USD/CAD pair rises above the crucial resistance of 1.3700 in Tuesday’s early American session. The Loonie asset strengthens as the US Dollar extends recovery after the United States Bureau of Labor Statistics (BLS) reported stronger-than-expected Q1 Employment Cost Index data.

The agency reported that the Labor Cost Index rose sharply by 1.2% from the consensus of 1.0% and the prior reading of 0.9%. The US Dollar Index (DXY) rebounds to near 106.00. The Highest Labor Cost index is broadly driven by strong wage growth, which eventually leads to an increase in households’ spending, suggesting a stubborn inflation outlook.

This is expected to allow the Federal Reserve (Fed) to keep rate cuts off the table and maintain the restrictive interest rate framework for a longer period. For more concrete interest rate outlook, investors will focus on the Fed’s monetary policy announcement on Wednesday. The Fed is expected to keep interest rates steady in the range of 5.25%-5.50%. For the interest rate guidance, the Fed reiterates the need to keep interest rates higher for a long time until it gains confidence that inflation will sustainably return to the desired rate of 2%.

Apart from a rebound in the US Dollar, the weak Canadian Dollar has also exerted pressure on the Loonie asset. The monthly Canadian Gross Domestic Product (GDP) grew at a slower pace of 0.2% from the estimates of 0.3% and the prior reading of 0.5%, downwardly revised from 0.6%. This indicates the consequences of higher interest rates by the Bank of Canada (BoC). The BoC may start reducing interest rates sooner due to weak growth and consistently softening price pressures. Traders have priced in the June meeting from when the BoC could pivot to interest rate cuts.

• USD/CAD could gain ground as technical analysis indicates a recovery of bullish sentiment.
• A break above 1.3800 could lead the pair to revisit its five-month high of 1.3846.
• A breach below the channel’s lower boundary around 1.3630 could weaken the bullish sentiment.

USD/CAD consolidates within the ascending channel on the daily chart, with the 14-day Relative Strength Index (RSI) positioned above 50, indicating a recovery of bullish sentiment. The pair edges higher to near 1.3700 during the European session on Tuesday.

Moreover, the Moving Average Convergence Divergence (MACD) line is above the centerline, signaling bullish momentum, although it remains below the signal line. Traders may look for confirmation from the MACD, a lagging indicator, to ascertain the direction of the trend.

The USD/CAD pair may encounter resistance near the psychological level of 1.3800. A breakthrough above this level could pave the way for the pair to revisit its five-month high of 1.3846, followed by the upper boundary of the ascending channel and the psychological barrier of 1.3900.

On the downside, the USD/CAD pair might test the lower boundary of the channel around the 1.3630 level. A breach below this level could exert downward pressure on the pair, leading it toward the region around the psychological support at 1.3600 and the 38.2% Fibonacci retracement level of 1.3591, plotted between the levels of 1.3178 and 1.3846.

The next significant support level lies at 1.3478, should the USD/CAD pair experience further depreciation, followed by December’s low at 1.3178.

USD/CAD: Daily Chart

• USD/CAD trades on a stronger note near 1.3665 on Tuesday. 
• The FOMC is widely expected to hold rates steady in its current 5.25%–5.50% range on Wednesday.
• The further downside of oil prices weighs on the commodity-linked Loonie. 

The USD/CAD pair posts modest gains around 1.3665 on Tuesday during the early Asian trading hours. A modest rebound of the US Dollar (USD) provide some support to the pair. Meanwhile, the decline in oil prices weighs on the commodity-linked Loonie. Investors will keep an eye on the Canadian February Gross Domestic Product (GDP) growth number. The attention will shift to the Federal Open Market Committee's (FOMC) interest rate decision on Wednesday.

The US Federal Reserve’s (Fed) policymakers see no urgency in lowering rates. Fed Governor Michelle Bowman said she sees “upside risks” to inflation. Meanwhile, Minneapolis Fed President Neel Kashkari floated the possibility of having no rate cuts this year. Atlanta Fed’s Raphael Bostic said he could favor hiking them if inflation gets worse. The US Fed’s higher-for-longer rate narrative lifts the Greenback and creates a tailwind for the USD/CAD pair. 

The FOMC is widely expected to leave rates unchanged in their current 5.25%–5.50% range on Wednesday. Investors will closely monitor the tone of the FOMC statement and press conference. If the US central bank remains hawkish, this might strengthen the USD and attract more foreign capital inflows. On the other hand, the dovish tone might exert some selling  pressure on the Greenback. 

On the Loonie front, traders expect the Bank of Canada (BoC) to wait until June or July to start cutting its policy rate. The monthly Gross Domestic Product (GDP) data for February might offer some hints about how the Canadian economy performs. In case the report shows weaker-than-expected data, this might allow the Bank of Canada (BoC) to pivot to interest rate cuts sooner and weigh on the CAD. Meanwhile, the further downside of oil prices might exert some selling pressure on the Loonie, as Canada is the largest crude oil exporter to the United States (US). 

• USD/CAD trades above 1.3640 as the US Dollar rebounds ahead of the Fed’s policy decision.
• The Fed is expected to emphasize keeping interest rates restrictive for a longer period.
• The Canadian economy is forecasted to have expanded by 0.3% in February.

The USD/CAD pair holds auction above the immediate support of 1.3460 in Monday’s early American session. The Loonie asset finds support as the US Dollar Index (DXY) rebounds after discovering buying interest near the previous week’s low of around 105.46.

The USD Index finds support as investors shift focus to the Federal Reserve’s (Fed) monetary policy decision, which will be announced on Wednesday. Financial market participants expect that the Fed will hold interest rates steady in the range of 5.25%-5.50% for the sixth time in a row.

As interest rates are expected to remain steady, investors will focus on the interest rate outlook. The Fed is expected to reiterate the need to maintain the current interest rate framework as it is for a longer period. The recent batch of consumer inflation showed that price pressures are stubbornly higher than expectations. The Fed would consider reducing interest rates only after policymakers get evidence that inflation will sustainably return to the desired rate of 2%.

Meanwhile, the market sentiment is bullish as investors have shrugged off risks of further escalation in Middle East tensions. The S&P 500 has opened on a bullish note. 10-year US Treasury yields have dropped to 4.64%.

On the Canadian Dollar front, investors await the monthly Gross Domestic Product (GDP) data for February, which will be published on Tuesday. Economists expect that the Canadian economy expanded by half the pace of 0.6% recorded in January. A slowdown in GDP growth will allow the Bank of Canada (BoC) to pivot to interest rate cuts sooner.

• USD/CAD loses momentum near 1.3645, losing 0.20% on Monday. 
• The US Federal Reserve (Fed) is expected to leave the interest rate unchanged in its current 5.25%–5.50% range on Wednesday.
• The decline of crude oil weighs on the commodity-linked Loonie. 

The USD/CAD pair weakens to 1.3645 during the early European trading hours on Monday. The decline of the US Dollar (USD) drags the pair lower to a nearly three-week low. In the absence of top-tier economic data release from Canada, the USD price dynamics will continue to play a key role in influencing the USD/CAD pair. The Federal Open Market Committee (FOMC) interest rate decision will be the highlight on Wednesday ahead of US employment data on Friday. 

The two-day FOMC monetary policy meeting will end on Wednesday, with no change in rate expected. The tone of Fed Chair Jerome Powell and other policymakers will most likely be on the hawkish side. Fed Chair Jerome Powell noted that the US central bank needs more confidence that inflation is returning to its 2% target before cutting rates. Investors see a 25% chance that the Fed will cut interest rates in July, down from 50% last week. Additionally, financial markets have priced in nearly 60% odds that the Fed will lower the rate at its September meeting, according to the CME FedWatch tool. 

About the data, US inflation, as measured by the Personal Consumption Expenditures (PCE) Price Index, climbed to 2.7% YoY in March from 2.5% in February, firmer than the market expectation of 2.6%. The Core PCE, the Fed's preferred inflation gauge, rose by 2.8% YoY in March, above the market consensus of 2.6%. 

On the Loonie front, the Bank of Canada’s (BoC) governing council members were split on how long the central bank should wait before it begins lowering interest rates when they met earlier this month. Canada’s inflation rate was 2.9% in March, within the BoC's 1-3% target range, and Core inflation eased over the last few months. Markets widely expect the BoC to start cutting its policy rate in June or July. This, in turn, might weigh on the Canadian Dollar (CAD) and cap the USD/CAD’s downside. 

Meanwhile, the decline of crude oil exerts some selling pressure on the commodity-linked Loonie, as Canada is the largest crude oil exporter to the United States (US). 

• USD/CAD trades sideways ahead of the US core PCE Inflation that will influence Fed rate cut expectations.
• The US Dollar remains on backfoot as weak US Q1 GDP raise concerns over the economic outlook.
• Investors see the BoC pivoting to interest rate cuts from June.

The USD/CAD pair is stuck in a tight range near 1.3650 in Friday’s European session. The Loonie asset struggles for a direction as the US Dollar consolidates ahead of the United States core Personal Consumption Expenditure Price Index (PCE) data for March, which will be published at 12:30 GMT.

On a monthly basis, the underlying inflation data is estimated to have increased steadily by 0.3%. Annually, the inflation measure is seen decelerating to 2.6% from the prior reading of 2.8%. The core PCE Price Index is the Federal Reserve’s (Fed) preferred inflation gauge, which is expected to influence speculation about when the central bank pivots to interest rate cuts, which financial markets are currently anticipating from the September meeting.

The US Dollar Index (DXY) is slightly up at 105.70 in the London session but fell sharply on Thursday after the US Q1 Gross Domestic Product (GDP) report showed that the economy expanded at a slower rate of 1.6% from the consensus of 2.5% and the prior reading of 3.4%. This has triggered doubts over the US economic outlook.

Meanwhile, the Canadian Dollar has remained underpinned against the US Dollar this week despite firm expectations that the Bank of Canada (BoC) will start reducing interest rates from the June meeting. Easing inflation, weak Retail Sales and loosening labor market conditions have boosted BoC rate cut bets for June.

USD/CAD corrects to near the breakout region of the Ascending Triangle chart pattern formed on a daily timeframe. The retest of the breakout region is keenly tracked by investors to build fresh longs as it is considered a discounted price. The 50-day Exponential Moving Average (EMA) near 1.3620 will provide support to the US Dollar bulls.

The 14-period Relative Strength Index (RSI) falls into the 40.00-60.00. The RSI is expected to rebound from 40.00 as the upside bias remains intact. However, a breakdown below the same will increase the odds of a bearish reversal.

Fresh buying opportunity would emerge if the asset falls further to near April 8 high at 1.3617. This would drive the asset towards April 11 low at 1.3661, followed by the round-level resistance of 1.3700.

In an alternate scenario, a breakdown below April 9 low around 1.3547 will expose the asset to the psychological support of 1.3500 and March 21 low around 1.3456.

USD/CAD daily chart

• USD/CAD loses ground due to higher crude Oil prices on Friday.
• WTI Oil price appreciates due to geopolitical risks associated with a potential Israeli invasion of the Rafah city.
• The lower US labor data has offset concerns regarding the sluggish GDP (Q1).

USD/CAD extends its losses for the second consecutive day, trading around 1.3640 during the Asian session on Friday. The Canadian Dollar (CAD) receives support from higher US crude Oil prices, contributing to the weakening of the USD/CAD pair.

West Texas Intermediate (WTI) crude Oil price edges higher to near $83.80 per barrel, supported by potential geopolitical risks stemming from a possible Israeli invasion of the southern Gaza city of Rafah.

On the data front, recent Canadian Retail Sales data for February highlighted economic deceleration. Additionally, domestic annual inflation in Canada stood at 2.9% in March, below expectations, indicating the potential for lower underlying inflation. This scenario may lead the Bank of Canada to consider interest rate cuts, which could limit the gains of the Canadian Dollar.

In contrast, US labor data offset sluggish GDP growth, dampening expectations for Federal Reserve interest rate cuts. The US Gross Domestic Product Annualized (Q1) expanded at a slower pace of 1.6% compared to the previous reading of 3.4%, falling short of market expectations of 2.5%. The slowdown in the US economy suggests potential challenges or deceleration in various sectors. Looking ahead, market attention is now focused on the US Personal Consumption Expenditures (PCE) Price Index data for March, scheduled for release on Friday.

Additionally, the US Initial Jobless Claims for the week ending on April 19 saw a significant decrease, dropping by 5,000 to 207,000. This figure marks the lowest level seen in two months and exceeds both market expectations of 214,000 and the previous reading of 212,000. The unexpected decline in jobless claims indicates a strengthening labor market, implying reduced layoffs and potentially increased hiring activity.

• USD/CAD remains on the defensive around 1.3655 on Friday amid the weaker USD. 
• US GDP number expanded by 1.6% on an annualized basis in Q1 2024, compared to 3.4% growth in Q4 2023.
• The weaker Canadian Retail Sales data triggered speculation that the BoC might start cutting interest rates in June. 

The USD/CAD pair extends its downside near 1.3655 on Friday during the early Asian session. The decline of the US Dollar (USD) to the two-week lows around the mid-105.00s exerts some selling pressure on the pair. Investors now shift their focus to the release of US Personal Consumption Expenditures (PCE) Price Index data, due later on Friday. 

The US economy grew at its slowest pace in nearly two years in the first quarter (Q1) of 2024 as prices rose at a faster pace, the Commerce Department revealed on Thursday. The first estimate of US Gross Domestic Product (GDP) grew by 1.6% on an annualized basis in the January-March period, compared to a 3.4% growth in Q4 2023. This reading came in below the market consensus of 2.5%. Additionally, US Personal Consumption Expenditures Prices rose at an annualized rate of 3.4% in Q1, nearly double the 1.8% pace recorded in Q4 2023. 

The weaker-than-expected GDP growth and hotter-than-expected inflation weigh on the Greenback and create a headwind for USD/CAD. The markets expect the US Federal Reserve (Fed) to begin the first rate cuts in September, with traders now pointing to just one rate cut in 2024 following the GDP data, according to the CME FedWatch tool.

On the Loonie front, the weaker Canadian Retail Sales data on Wednesday triggered speculation that the Bank of Canada (BoC) might start cutting interest rates at its next meeting in June, which might drag the Canadian Dollar (CAD) lower. Nonetheless, the rebound of crude oil prices provides some support to the CAD, as Canada is the largest crude oil exporter to the United States (US). 

• USD/CAD loses ground due to improving risk appetite.
• The US Dollar depreciates following the subdued US Treasury yields.
• The lower Canadian Retail Sales figures have fueled speculation that the BoC might opt to reduce interest rates in June.

USD/CAD pares its recent gains registered in the previous session, trading around 1.3670 during the European hours on Thursday. The improving risk appetite weakens the US Dollar (USD), undermining the USD/CAD pair.

The US Dollar Index (DXY), which measures the US Dollar (USD) against six major currencies, edging lower to near 105.60, down by 0.23%, by the press time on Thursday. The decline in the US Treasury yields, following mixed manufacturing data from the United States (US), put pressure on the Greenback.

According to the US Department of Commerce's report on Wednesday, US Durable Goods Orders surged by 2.6% month-over-month (MoM) in March, surpassing the previous reading of 0.7% and beating the estimated 2.5%. This marked the largest monthly increase in durable goods orders since last November, driven primarily by strong demand for transport equipment. Meanwhile, core goods, excluding transportation, only increased by 0.2% MoM, falling short of the expected 0.3%.

On Thursday, the preliminary Gross Domestic Product Annualized (Q1) data for the United States (US) is scheduled to be released, with expectations of a slowdown in the growth rate. These GDP figures will provide insights into the strength of the US economy and could potentially influence future actions by the Federal Reserve (Fed).

The Canadian Dollar (CAD) struggled after lower-than-expected Retail Sales data was released on Wednesday. This has sparked speculation that the Bank of Canada (BoC) may consider cutting interest rates at its next meeting in June. This sentiment may weigh on the Loonie Dollar (CAD).

• USD/CAD holds positive ground near 1.3705 on Thursday. 
• US Durable Goods Orders rose by 2.6% MoM in March from the previous reading of a 0.7% increase.
• Canada’s February Retail Sales data supports the outlook for the BoC rate cut as soon as June. 

The USD/CAD pair extends its recovery around 1.3705 during the early Asian trading hours on Thursday. The weaker-than-expected Canada’s Retail Sales weigh on the Canadian Dollar (USD). Later on Thursday, investors will closely monitor the US preliminary Gross Domestic Product (GDP) Annualized, which is projected to grow 2.5% in Q1. 

Investors anticipate that the US Federal Reserve (Fed) will lower its Fed Funds Rate in September 2024, with a chance of nearly 70%, according to the CME FedWatch Tool. Last week, the Fed policymaker stated that the central bank’s current restrictive policy is appropriate and that the Fed wouldn’t cut rates until the end of the year. The higher-for-longer US rate narrative provides some support for the Greenback against the CAD. 

About the data, the US Census Bureau showed on Wednesday that Durable Goods Orders in the United States rose by 2.6% MoM in March from the previous reading of a 0.7% increase. Excluding transportation, Durable Goods Orders gained by 0.2% MoM, below the market consensus of 0.3%

On the Loonie front, the recent Canadian Retail Sales data has triggered speculation that the Bank of Canada (BoC) might cut interest rates at its next meeting in June. Retail Sales in Canada decreased 0.1% MoM in February, worse than the estimation of a 0.1% increase. Excluding autos, Retail Sales fell 0.3% MoM in the same period, compared to the forecast of 0.0%. Additionally, the decline in crude oil prices exerts some selling pressure on the commodity-linked Loonie, as Canada is the largest crude oil exporter to the United States (US). 

• USD/CAD recovers to near 1.3700 as the Canadian Retail Sales surprisingly contracted by 0.1% in March.
• Weak Retail Sales data would prompt expectations of early rate cuts by the BoC.
• The US Dollar struggles for a strong recovers due to weak S&P Global PMI report for April.

The USD/CAD pair witnesses strong buying interest and rises to 1.3700 as the Statistics Canada has posted weaker-than-expected Retail Sales data for March. Sales at retail stores contracted at a slower pace of 0.1% against 0.3% in February. However, investors forecasted that Retail Sales will rose by 0.1%.

The Retail Sales is a leading indicator of consumer spending that signifies households’ demand. Lower Retail Sales suggest weak demand by households, which force factory owners to reduce prices of goods and services at their factory gates. This leads to a decline in the consumer price inflation, which would allow the Bank of Canada (BoC) to start reducing interest rates earlier. Currently, financial markets anticipate that the BoC will start reducing interest rates from the June meeting.

Meanwhile, the US Dollar struggles to recover above the immediate resistance of 105.80. It seems that investors have not shrugged off the impact of weak S&P Global preliminary PMI report for April, released on Tuesday.

The S&P PMI report showed that the Manufacturing PMI drops below the 50.0 threshold and the Services PMI falls sharply to 50.9.

Going forward, the US Dollar will dance to the tunes of the Q1 Gross Domestic Product (GDP) and the core Personal Consumption Expenditure Price Index (PCE) data for March, which will be published on Thursday and Friday. The economic data will impact speculation for timing of rate cuts by the Federal Reserve (Fed), which are currently expected from the September meeting.

• USD/CAD rebounds from a two-week low and draws support from a combination of factors.
• Weaker Oil prices undermine the Loonie and act as a tailwind amid renewed USD buying.
• Traders look forward to important US macro releases before placing fresh directional bets.

The USD/CAD pair attracts some buyers in the vicinity of mid-1.3600s, or a two-week low touched earlier this Wednesday and for now, seems to have snapped a five-day losing streak. Spot prices stick to modest intraday gains through the first half of the European session and currently trade near the 1.3675-1.3680 region or the top end of the daily range.

Crude Oil prices struggle to capitalize on the previous day's goodish rebound from the 50-day Simple Moving Average (SMA) support amid easing geopolitical tensions and concerns about slowing economic growth in China. This, along with expectations that the Bank of Canada (BoC) will cut interest rates in the summer amid declining inflation and slower economic growth, is seen undermining the commodity-linked Loonie and acting as a tailwind for the USD/CAD pair amid the emergence of some US Dollar (USD) dip-buying.

Investors now seem convinced that the Federal Reserve (Fed) is unlikely to begin cutting interest rates before September and have also scaled back their expectations about the number of rate cuts in 2024 to two amid still sticky inflation. The hawkish outlook, meanwhile, remains supportive of elevated US Treasury bond yields and helps revive the USD demand. That said, a generally positive risk tone might hold back traders from placing fresh bullish bets around the safe-haven buck and act as a headwind for the USD/CAD pair.

Investors might also prefer to wait on the sidelines ahead of this week's important US macro data, starting with Durable Goods Orders later during the North American session. Apart from this, the Advance US Q1 GDP report and the Personal Consumption Expenditures (PCE) Price Index on Thursday and Friday, respectively, might provide fresh cues about the Fed's rate cut path. This, in turn, will play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the USD/CAD pair.

• USD/CAD faces challenges due to improved risk sentiment, driven by easing geopolitical tensions in the Middle East.
• The US Dollar lost ground after the release of downbeat US PMI data released on Tuesday.
• The Canadian Dollar receives support from the uptick in crude Oil prices.

USD/CAD continues its losing streak that began on April 17, trading around 1.3660 during the Asian session on Wednesday. The pair receives downward pressure due to the downbeat US Dollar (USD), which could be attributed to the disappointing Purchasing Managers Index (PMI) data from the United States (US) released on Tuesday.

In April, the preliminary S&P Global Composite PMI for the US declined to 50.9 from the previous reading of 52.1. Additionally, the Manufacturing PMI fell to 49.9 from 51.9 in the previous reading, below the estimated 52.0. Similarly, the Services PMI decreased to 50.9, compared to the prior 51.7, falling short of the expected 52.0.

In Canada, the uptick in crude Oil prices contributes upward support to the Canadian Dollar (CAD), given the fact that Canada is the largest crude Oil exporter to the United States (US). West Texas Intermediate (WTI) Oil price trades around $83.20 per barrel, by the press time.

Crude Oil prices have advanced following industry data indicating an unexpected decrease in US crude stocks last week, signaling positive demand dynamics. Attention has shifted away from tensions in the Middle East. The American Petroleum Institute (API) reported a 3.23 million barrels decline in weekly crude Oil stocks for the week ending April 19, contrary to the expected increase of 1.80 million barrels and the previous week's increase of 4.09 million barrels.

Canadian Industrial Product Price Index rose by 0.8% in March, in line with expectations and slightly lower than the previous month's upwardly revised figure of 1.1%. Additionally, the New Housing Price Index remained unchanged in March, against forecasts of a 0.1% increase, with the year-over-year NHPI declining by 0.4%. Investors will keep an eye on Canadian Retail Sales data due on Wednesday.

• USD/CAD struggles to hold the 1.3700 support as the US Dollar edges down.
• US bond yields consolidate as investors focus on US core PCE Price Index data.
• BoC’s rate cut prospects remain strong as Canada’s inflation softens significantly in March.

The USD/CAD pair remains feeble near the round-level support of 1.3700 in Tuesday’s European session. The Loonie asset comes under pressure as the US Dollar drops amid improvement in the risk appetite of the market participants.

S&P 500 futures have posted some gains in the London session. The appeal for risky assets improves as investors see no further escalation in Middle East conflict on an immediate basis. 10-year US Treasury yields consolidate around 4.63% as investors shift focus to the United States core Personal Consumption Expenditure Price Index (PCE) data for March, which will be published on Friday. The US Dollar Index (DXY) edges down to 105.96.

The underlying inflation data will significantly influence market expectations to Federal Reserve (Fed) rate cuts, which traders anticipate from the September meeting. The annual core PCE Price Index is forecasted to have softened to 2.6% from 2.8% in February with monthly inflation increasing steadily by 0.3%.

Meanwhile, the Canadian Dollar has consistently performed better against the US Dollar since the last trading sessions. The Canadian Dollar could weaken as investors see the Bank of Canada (BoC) starting to reduce interest rates earlier amid easing price pressures. BoC’s preferred inflation measure that excludes eight volatile items softened to 2% in March, allowing policymakers to discuss rate cuts.

USD/CAD faced sharp selling pressure last week after a rally stalled near 1.3850. The asset rallied after a breakout of the Ascending Triangle chart pattern formed on a daily timeframe. The 20-day Exponential Moving Average (EMA) near 1.3674 will be a major support area for the US Dollar bulls.

The 14-period Relative Strength Index (RSI) returns to the 40.00-60.00 range, which indicates that bullish momentum has concluded for now while the upside bias is still intact.

Going forward, a mean-reversion move to near the 20-day EMA around 1.3674 will offer a buying opportunity to market participants. Investors would find resistance near the 22 November 2023, high at 1.3766, followed by the round-level resistance of 1.3800.

In an alternate scenario, a breakdown below April 9 low around 1.3547 will expose the asset to the psychological support of 1.3500 and March 21 low around 1.3456.

USD/CAD daily chart

• USD/CAD trades in negative territory for the fifth consecutive day around 1.3695 on Tuesday. 
• The high-for-longer US rate narrative might boost the USD and cap the pair’s downside. 
• Canadian Industrial Produce Prices dropped by 0.8% MoM in March compared to a rise of 1.1% prior, in line with the consensus. 

The USD/CAD pair extends its downside near 1.3695 despite lower crude oil prices. However, the downside of the pair might be capped by strong US economic data and the Fed’s hawkish comments. Investors will keep an eye on the US S&P Global Purchasing Managers Index (PMI) ahead of US Gross Domestic Product (GDP) and US Core Personal Consumption Expenditures (PCE) later this week. 

Many Fed policymakers agreed with the idea of keeping borrowing costs at the current level, given the slow and bumpy progress on inflation and the robust US economy. New York Fed President John Williams said he doesn't feel urgency to cut interest rates, given the strength of the economy. Chicago Fed Austan Goolsbee stated that the Fed's current restrictive monetary policy is appropriate due to the robust US economic data. The high-for-longer rate narrative in the USD might lift the greenback against its rivals. The Core US PCE might offer some hints about the further confirmation that progress against inflation has stalled.

On the Loonie front, data released from Statistics Canada revealed that Canadian Industrial Produce Prices were in line with market expectations, easing by 0.8% MoM in March from the previous month’s 1.1% (revised upward from 0.7%). Meanwhile, the decline of WTI prices exerts some selling pressure as Canada is the largest oil exporter to the United States. Canada’s Retail Sales will be released on Thursday, which is estimated to improve to 0.1% MoM in February from a decrease of 0.3% in January.