USD/CAD Targeting 1.40 Next As MAs Turn into Support and Oil Falls
USD/CAD has been bullish since July after reversing around 1.31 and broke through the resistance zone at 1.38 early this month. It was trading toward the next resistance zone, close to 1.39, on the daily chart. The price breached slightly over 1.3903, as crude oil continued to slide and Canada’s October employment data was disappointing, which has been keeping this pair bullish.
However, the USD began to fall following the FED meeting earlier this month and a batch of bad economic data from the US, which sent the price to the 50 SMA (yellow) on the daily chart. When traders and experts concluded that the Fed’s rate hikes were coming to an end and that the next move would be a rate cut next year, the mood altered. The 10-year US Treasury yield fell, supporting global stock indices, but the situation changed last week.
This pair fell to 1.3630s, where it collided with the 200 SMA (purple) on the H4 chart, which appears to have held as support, since we saw a bounce higher last week. USD/CAD has continued to rise after finding support at 1.3650 on Monday. Since then, it gained about 200 pips as the US Dollar Index rose while crude Oil prices continued to fall. Carolyn Rodgers, Deputy Governor of the Bank of Canada, has been dovish recently, in response to the release of the summary of deliberations.
The Deputy Governor cautioned that the time of ultra-low interest rates is likely to come to an end, and that both firms and consumers must adjust. According to Rodgers, consumers are already feeling the weight of current debt, with delinquency rates on credit cards, vehicle loans, and unsecured lines of credit returning to or slightly exceeding pre-pandemic levels. We also got the Bank of Canada minutes last week, which didn’t show much will to push rates higher, which weighed further on the CAD, sending this pair above 1.38. So, we have been trying to buy the dips in this pair and yesterday opened a buy USD/CAD signal as it retreated lower to the 100 SMA (green) where it found support.
BOC Minutes Highlights
- Some members of governing council felt it more likely than not that overnight rate would need to rise further
- Other members felt 5% would likely be enough to bring inflation to target
- There was a strong consensus that with increasing evidence of falling inflation, BOC should be patient
- Agreed to revisit need for rate hike at future decisions, after seeing more data
- The lack of downward momentum in underlying inflation caused considerable concern, could mean more time needed or that policy not restrictive enough
- Agreed overall inflationary risks had increased
- Persistence in core, elevated expectations, wage growth and atypical corporate pricing behaviour indicate high inflation is becoming entrenched
USD/CAD Live Chart
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