The USD/CAD nears the 1.3750 mark as the Federal Reserve plans to postpone rate cuts.
FUNDAMENTAL OVERVIEW:
- The USD/CAD surges to 1.3735 amid a weakened Canadian Dollar due to negative market sentiment.
- Investor caution grows as hopes for Federal Reserve rate cuts in June diminish.
- Bank of Canada’s Macklem regards the shift in expectations towards Fed rate cuts in June as plausible.
The USD/CAD pair is edging closer to the 1.3750 mark during Friday’s London session. The Canadian dollar continues its upward momentum for the third consecutive trading session as investors anticipate the Federal Reserve (Fed) shifting towards rate cuts by the third quarter of this year.
Anticipation of rate cuts from the Fed has diminished due to persistent consumer price inflation in the United States throughout March. Additionally, the core Producer Price Index (PPI) data, which excludes food and energy prices, exceeded expectations. The annual core PPI rose by 2.4%, surpassing estimates of 2.3% and the previous reading of 2.0%.
Investors foresee the possibility of the Fed commencing interest rate reductions following the September meeting. Moreover, they anticipate two rate cuts instead of the previously projected three, as indicated by Fed policymakers in the latest dot plot.
Diminished prospects of the Fed reducing interest rates at the June meeting have diminished the attractiveness of risk-sensitive assets. S&P 500 futures have incurred losses during the European session. The US Dollar Index (DXY) continues its upward trend, reaching 105.85. The likelihood of the Fed maintaining higher interest rates for an extended duration is favorable for the US Dollar.
Regarding the Canadian dollar, it has depreciated owing to strong market beliefs that the Bank of Canada (BoC) will initiate interest rate reductions in June. Following the maintenance of the current policy on Wednesday, BoC Governor Tiff Macklem suggested the potential for a rate cut in June.
In the future, the anticipation of further increases in global oil prices, driven by escalating geopolitical tensions, may bolster the Canadian Dollar. Concerns regarding potential confrontations between Iran and Israel have intensified following Israeli air strikes on the Iranian embassy in Damascus. Additionally, Israel’s preparations to invade Rafah, where displaced Palestinians have sought refuge, add to these apprehensions.
USD/CAD TECHNICAL ANALYSIS DAILY CHART:
Technical Overview:
USD/CAD is trading within an up channel.
USD/CAD is moving above all the Moving Averages (SMA).
The Relative Strength Index (RSI) is in the Buying zone, while the Stochastic oscillator suggests a Positive trend.
Immediate Resistance level: 1.3770
Immediate support level: 1.3746
HOW TO TRADE USD/CAD
After a decline, USD/CAD found support and reversed to the upside, entering an upward channel. It has breached the previous support and is attempting to move higher. It is presently trading within a resistance zone, and if this zone is breached, further upside potential may be observed.