USD/CAD Outlook: Key Technical Levels and Market Drivers Explored
USD/CAD remains below 1.3900 amid dovish Fed expectations, with attention on upcoming US PMI data
FUNDAMENTAL OVERVIEW:
- USD/CAD shows modest gains at 1.3880 in Monday’s early European session, supported by risk-off sentiment.
- Traders anticipate a 25-bps rate cut by the BoC in its September meeting.
USD/CAD posts modest gains around 1.3880 in early European trading on Monday. Declining crude oil prices put pressure on the commodity-linked CAD, while safe-haven flows support the Greenback, limiting the pair’s upside. The key focus will be Monday’s US ISM Services PMI data release.
The escalating geopolitical tensions in the Middle East could enhance the safe-haven appeal of the Greenback against the Loonie. US Secretary of State Tony Blinken informed G7 counterparts on Sunday that Iran and Hezbollah might attack Israel as early as Monday, according to three sources briefed on the call, Axios reports.
However, weaker US employment data released on Friday could heighten expectations of a Federal Reserve (Fed) rate cut this year, potentially weighing on the Greenback. The Labor Department reported that US Nonfarm Payrolls (NFP) rose by 114K in July, down from a revised 179K in June and below the forecast of 185K. The US unemployment rate also increased to 4.3% in July from 4.1% in June, marking the highest level since November 2021.
Regarding the Canadian Dollar (Loonie), speculation that the Bank of Canada (BoC) might implement another interest rate cut this year could weaken the CAD. Markets anticipate one more 25 bps rate cut in 2023, with nearly 60% odds for a cut in the BoC’s September meeting. Lower crude oil prices are also expected to exert near-term selling pressure on the CAD, as Canada is the leading oil exporter to the United States.
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 Neutral trend.
Immediate Resistance level: 1.3846
Immediate support level: 1.3804
HOW TO TRADE USD/CAD
USD/CAD initially moved higher but faced resistance and subsequently declined. After consolidating within a range, it has now broken above the range high and is trending upwards. Currently, the price is testing its support zone; if it holds above this level, further gains for USD/CAD are likely.