The USD/CAD pair has experienced a rise in Friday’s European session, reaching 1.3640. This increase can be attributed to a strong recovery in the US Dollar, driven by hawkish guidance on interest rates by Federal Reserve (Fed) officials. The US Dollar Index (DXY) has bounced back to 104.75 from a five-week low of 104.00, as Fed policymakers express the need for a restrictive policy stance for a longer period due to uncertainty regarding inflation returning to 2%.
Investors are keeping an eye on Canada’s Consumer Price Index (CPI) data for April, which is set to be released on Tuesday. This data will play a significant role in shaping market expectations for potential rate cuts by the Bank of Canada (BoC), with many investors anticipating cuts to begin as soon as the June meeting. The USD/CAD pair has rebounded after finding buying interest near the horizontal support level from December 7 high at 1.3620. The asset is currently trading below the 20-day Exponential Moving Average (EMA) around 1.3667, adding to the uncertainty of the near-term outlook.
The 14-period Relative Strength Index (RSI) remains within the 40.00-60.00 range, indicating a sharp contraction in volatility. A potential buying opportunity could arise if the asset breaks above the April 30 high at 1.3785, leading to further gains towards the April 17 high at 1.3838 and the psychological resistance of 1.3900. On the other hand, a breakdown below the May 3 low around 1.3600 could expose the asset to lower support levels such as the April 9 low at 1.3547 and the psychological level of 1.3500.
Looking ahead, the market will be closely monitoring the BoC Consumer Price Index Core (YoY) data, which is released by the Bank of Canada on a monthly basis. This economic indicator compares the cost of a fixed basket of goods and services for Canadian consumers, excluding eight volatile components. A high reading is generally seen as bullish for the Canadian Dollar (CAD), while a low reading is considered bearish. The next release for this indicator is scheduled for Tuesday, May 21, 2024, at 12:30, with the previous reading standing at 2%.
Overall, the USD/CAD pair’s movement is heavily influenced by the performance of the US Dollar and Canadian economic data releases such as the CPI data and the BoC Consumer Price Index Core. Investors are closely watching for any potential shifts in interest rate policies by the central banks to make informed trading decisions in the forex market.
