Daily Price Outlook
During the European trading session, the USD/CAD currency pair maintained its upward trend, staying well-supported around the 1.4410 level and reaching an intraday high of 1.4416. The key driver behind this bullish movement is the US Dollar's recovery from its lowest point since December 18.
The US Dollar found strength due to renewed concerns over inflation, sparked by fears that former President Donald Trump's protectionist policies could reignite inflationary pressures. These worries have led to an increase in US Treasury bond yields, further boosting demand for the US Dollar.
Despite the positive momentum, the USD/CAD pair remains within a familiar trading range that has been in place for about a month.
Traders are cautious ahead of key central bank events later this week, which are likely to influence market sentiment and drive further price movements. As a result, investors are waiting on the sidelines for clearer signals from upcoming central bank decisions.
Impact of Central Bank Policy Divergence and Crude Oil Price Recovery on USD/CAD Pair
On the BoC front, the Bank of Canada (BoC) is set to announce its policy decision on Wednesday, with expectations pointing to a 25 basis point interest rate cut.
This move contrasts with the broader market view that the US Federal Reserve (Fed) will keep interest rates steady after their two-day meeting on the same day.
This difference in monetary policy is seen as a major factor supporting the USD/CAD pair, as traders expect the US Dollar to benefit from a more hawkish stance compared to the BoC's dovish approach.
However, a slight recovery in Crude Oil prices, which had dropped to a near three-week low on Monday, is helping to limit losses for the Canadian Dollar (Loonie), a currency often influenced by oil price movements. This recovery in oil prices is capping the upside potential for the USD/CAD pair.
Traders are now focusing on the US economic data, including Durable Goods Orders, the Conference Board's Consumer Confidence Index, and the Richmond Manufacturing Index, hoping for fresh direction as they anticipate these reports later in the US session. These factors will likely influence the pair's movement going forward.
Therefore, the Bank of Canada's expected interest rate cut, along with the US Federal Reserve's steady stance, supports the USD/CAD pair by strengthening the US Dollar. However, the recovery in Crude Oil prices helps limit the upside potential for the pair.
USD/CAD – Technical Analysis
USD/CAD is trading at $1.43954, up 0.15%, as the pair maintains a bullish bias supported by positive momentum. The pivot point at $1.44158 acts as a critical threshold, with a break above this level paving the way for further gains.
Immediate resistance is positioned at $1.44576, followed by key levels at $1.45185 and $1.45757, suggesting strong upward potential if the pair clears these barriers.
On the downside, support is seen at $1.43340, with additional buffers at $1.42694 and $1.42101, which could come into play if selling pressure intensifies.
The pair is trading above the 50-EMA at $1.43679, which reinforces the short-term bullish outlook. However, any failure to sustain gains above the pivot may lead to consolidation or correction.
The trade setup suggests a Buy Stop at $1.44266, targeting $1.44846, with a stop loss at $1.43855 to mitigate downside risk.
Traders should monitor developments in oil prices, a key driver for the Canadian dollar, and upcoming economic data for directional cues.
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