Fragile Resistance for USD/CAD at 1.3660 Amid Risk-Off Mood, Upside Bias Favored

During the Asian session, the USD/CAD pair’s upward momentum stalled at around 1.3660. Although Loonie’s positive momentum has slowed, there is still an upside bias. The Canadian Dollar is expected to reclaim last week’s high of 1.3665 as the US Dollar strengthens due to mounting concerns over the Federal Reserve’s policy tightening.
In the Asian session, S&P500 futures have declined as the US economy has entered a recession despite hawkish Fed bets. The US Dollar Index (DXY) faced resistance at 104.70, but the theme of risk aversion remains strong.

The yields of US Treasury bonds continue to rise as investors expect a significant rate hike from the Fed due to increasing inflationary pressures in February. The 10-year Treasury yield is currently at 3.94%.

Meanwhile, the Canadian Dollar faces pressure due to disappointing Q4 Gross Domestic Product (GDP) figures. Annualized GDP remained unchanged, falling short of projections of 1.5% and the previous announcement of 2.3%. Although monthly GDP (Dec) fell by 0.1% vs a flat consensus.

Despite not benefiting Canada’s economic future, flat GDP data are favorable to the Bank of Canada (BoC), which is working to reduce persistent inflation. BoC Governor Tiff Macklem has already halted the policy tightening cycle after raising rates to 4.5%, acknowledging that current monetary policy is restrictive enough to manage inflationary forces for now.

Although disappointing, the flat GDP data in Q4 is beneficial to the Bank of Canada (BoC) as they work to reduce persistent inflation. BoC Governor Tiff Macklem has paused the policy tightening cycle after raising rates to 4.5%. Oil prices have increased, which is positive for the Canadian dollar as Canada is the top oil exporter to the US.

USD/CAD Technical Outlook

Yesterday, the USD/CAD pair showed a clear positive trend, returning to the bullish channel on the chart. This reinforces expectations of continued bullishness in the short term, with a target of 1.3680. A breach of this level could lead to further gains up to 1.3800.

We expect the bullish trend to continue, supported by the EMA50; breaking 1.3600 could bring new negative pressure and a possible test of 1.3500 before attempting to rise again. Today’s expected trading range is between 1.3560 support and 1.3710 resistance.

ABOUT THE AUTHOR See More

Arslan Butt

Index & Commodity Analyst

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.

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