USD/CAD Clears May High with Fed Expected to Retain Restrictive Policy

US Dollar Outlook: USD/CAD

USD/CAD breaks above the opening range for June to clear the May high (1.3784), and the exchange rate may continue to trade within the ascending channel from earlier this year as the Federal Reserve is expected to retain a restrictive policy.

USD/CAD Clears May High with Fed Expected to Retain Restrictive Policy

USD/CAD extends the advance following the better-than-expected US Non-Farm Payrolls (NFP) report to register a fresh monthly high (1.3792), and it remains to be seen if the Federal Open Market Committee (FOMC) will adjust the forward guidance for monetary policy as the ongoing expansion in employment raises the central bank’s scope to further combat inflation.

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US Economic Calendar

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As a result, the FOMC may show a greater willingness to keep US interest rates higher for longer, and the update to the Fed’s Summary of Economic Projections (SEP) may generate a bullish reaction in the Greenback should the central bank tame expectations for a rate cut in 2024.

However, the FOMC may prepare US households and businesses for a less restrictive policy in an effort to avoid a recession, and USD/CAD may struggle to retain the rebound from the monthly low (1.3603) if the central bank forecasts lower interest rates for 2024.

With that said, USD/CAD may face a near-term pullback as it approaches channel resistance, but the exchange rate may attempt to test the April high (1.3846) as it continues to trade within the ascending channel from earlier this year.

USD/CAD Price Chart –Daily

Chart Prepared by David Song, Strategist; USD/CAD Price on TradingView

• USD/CAD bounced back ahead of the May low (1.3590) to hold within the ascending channel from earlier this year, with the exchange rate approaching channel resistance as it extends the advance from the start of the month.
• A break/close above the 1.3810 (161.8% Fibonacci extension) to 1.3830 (38.2% Fibonacci extension) region raises the scope for a test of the April high (1.3846), with the next area of interest coming in around 1.3900 (50% Fibonacci extension).
• At the same time, failure to push above the 1.3810 (161.8% Fibonacci extension) to 1.3830 (38.2% Fibonacci extension) region may keep USD/CAD within the ascending channel, but a breach below 1.3700 (23.6% Fibonacci retracement) may push the exchange rate back towards the 1.3610 (38.2% Fibonacci retracement) to 1.3630 (38.2% Fibonacci retracement) area.

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--- Written by David Song, Strategist

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