- A weaker US dollar helps the Canadian dollar climb somewhat.
- Despite reduced oil prices and the Fed’s aggressive posture, USD/CAD is retreating.
- The current rebound in the Canadian dollar is probably only temporary.
Wednesday’s gains in the Canadian dollar (CAD) are intended to end a five-day sell-off that has caused the Loonie to drop 1.7%. As US rates decline from their year-to-date highs, the US dollar is weakening overall. This is providing some relief to the battered CAD, which has been having difficulties due to a negative fundamental backdrop.
However, given the current circumstances, it is unlikely that the Canadian Dollar would rise much further. The US dollar is anticipated to be supported by the Federal Reserve’s (Fed) “higher for longer” posture, which contrasts with the Bank of Canada’s (BoC) dovish forecast. In addition, the significant decline in the price of oil, Canada’s primary export, adds to the Loonie’s weight due to its connection to commodities.
The only noteworthy events on Wednesday are the publication of the Fed’s beige book and comments by Fed members Mester and Bowman. Their influence on the pair is minimal following Fed Chair Jerome Powell’s remarks on Tuesday.
Daily digest market movers: USD/CAD loses steam at five-month highs
After losing over 2% during the course of a five-day sell-off, the Canadian dollar is now trading 0.2% higher on Wednesday.
The dovish perspective of the BoC, which is anticipated to begin reducing rates in June, and the hawkish Fed position, which Fed Chair Powell reiterated on Wednesday, are working against the CAD.
Fed Chair Powell issued a warning on Wednesday over the lack of progress being made on inflation, implying that the bank will need to maintain high interest rates for an extended period of time.
From 50% at the start of the week, the odds on a July rate cut by the Fed have now dropped to 37%. From 150 BP in January, investors are now pricing in 40 bps of cutbacks in 2024.
Against predictions of 1.65 million barrels, EIA Crude Oil stockpiles have climbed by 2.735 million. This is gradually putting more pressure on the price of crude and the CAD.
Mixed statistics were reported in Canada’s inflation data on Tuesday. The headline CPI increased from 2.8% in the prior month to 2.9% annually. Reaching its lowest point in three years, the Core CPI fell to 2%.
These numbers support the hypothesis that the Bank of Canada will be able to raise negative pressure on the pair by cutting rates soon—likely in June.
Technical analysis: USD/CAD in corrective pullback with 1.3785 holding bears for now
Although the pair is seeing a corrective drop from overbought levels after a five-day surge, the overall US Dollar trend is still intact.
Before the intra-week low at 1.3728, bears are anticipated to face resistance at 1.3785. 1.3705 represents the 38.2% Fibonacci retracement level of the April surge. The immediate resistance on the upside is located at 1.3845. The next objective would be the peak point in November 2023 at 1.3900.
USD/CAD 4-Hour Chart
