The USDCAD currency pair has experienced a notable 1% decline month-to-date, primarily driven by a weakening U.S. dollar.
This movement reflects a backdrop of softening economic conditions in the U.S., where recent data points to a cooling labour market amid rising jobless claims, undermining one of the key drivers of inflation. Additionally, U.S. inflation reported at 3.4% for April indicates a slight decrease from the previous month, while core inflation marked its slowest year-over-year pace since April 2021. These factors have heightened market expectations of potential rate cuts by the Federal Reserve, weighing on the U.S. dollar. Current market sentiment reflects a 61% chance of a rate cut in September.
This week, traders are looking to the economic calendar for further direction. Canada will report its inflation rate data later today, and the U.S. Federal Open Market Committee (FOMC) Minutes will be released on Wednesday. These events could provide crucial insights into the future of monetary policy and its impact on the USDCAD pair, keeping market participants on high alert.
Technical
The USDCAD currency pair is currently trading in a pronounced downtrend, positioned below the 100-day moving average. The formation of a descending channel pattern confirms this downward trajectory.
Selling pressures intensified around the 1.36903 level, near the 100-day moving average, creating a significant resistance point. This drove the pair lower until it found support at the 1.35905 level, where oversold Relative Strength Index (RSI) conditions suggested a potential rebound.
Following this, the pair retraced to the 50% Fibonacci Retracement level, aligning with the upper boundary of the descending channel. This level serves as a critical juncture; renewed selling pressure could push the pair back to retest the 1.35905 support level. Conversely, a high-volume breakout above the descending channel and the 50% retracement level could signal further gains. In such a scenario, traders will likely see the 61.80% Fibonacci Golden Ratio and the 1.36903 resistance level as potential targets.
Summary
In summary, the USDCAD’s 1% month-to-date decline reflects U.S. economic softening and heightened rate cut expectations. Key technical levels to watch are the 1.35905 support and 1.36903 resistance. Market sentiment is driven by potential U.S. rate cuts, and upcoming economic data will be crucial.
Sources: U.S. Bureau of Labor Statistics, Reuters, TradingView
Piece Written By Nkosilathi Dube, Trive Financial Market Analyst
