USD/CAD Recovers Ahead of Monthly Low to Preserve Ascending Channel

US Dollar Outlook: USD/CAD

USD/CAD bounced back ahead of the monthly low (1.3590) to hold within the ascending channel from earlier this year, but the exchange rate may face range bound conditions if it clear the monthly high (1.3784).

USD/CAD Recovers Ahead of Monthly Low to Preserve Ascending Channel

USD/CAD extends the rebound from the weekly low (1.3615) to carve a series of higher highs and lows, and developments coming out of the US and Canada may sway the exchange rate as both the Federal Reserve and Bank of Canada (BoC) retain a restrictive policy.

Join David Song for the Weekly Fundamental Market Outlook webinar. David provides a market overview and takes questions in real-time. Register Here

Recent remarks from Fed officials suggest the central bank is in no rush to switch gears amid a lack of progress in bringing inflation down towards the 2% target, and the Federal Open Market Committee (FOMC) may retain a data-dependent approach in managing monetary policy as the update to the Personal Consumption Expenditure (PCE) Price Index is anticipated to show sticky inflation.

US Economic Calendar

FOREX.com Economic Calendar

The core PCE index, the Fed’s preferred gauge for inflation, is projected to print at 2.8% for the third consecutive month, and evidence of persistent price growth may generate a bullish reaction in the Greenback as it encourages the FOMC to keep US interest rates higher for longer.

However, a downtick in the core PCE may drag on the Greenback as it puts pressure on Chairman Jerome Powell and Co. to implement a rate-cut, and USD/CAD may face increased volatility ahead of the Bank of Canada (BoC) meeting on June 5 as Canada’s Gross Domestic Product (GDP) report is anticipated to show a pickup in economic activity.

Canada Economic Calendar

Canada is expected to grow 2.2% in the first quarter of 2024 after expanding 1.0% during the previous period, and a positive development may curb the recent advance in USD/CAD as raises the BoC’s scope to further combat inflation.

At the same time, signs of a slowing economy may encourage the BoC to alter the forward guidance for monetary policy as the central bank ‘continues to focus on the balance between demand and supply in the economy,’ and a weaker-than-expected GDP report may keep USD/CAD afloat as it encourages Governor Tiff Macklem and Co. to pursue a less restrictive policy.

With that said, USD/CAD may continue to trade within the ascending channel from earlier this year as it carves a series of higher highs and lows, but failure to clear the monthly high (1.3784) may keep the exchange rate within a defined range.

USD/CAD Price Chart –Daily

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

• USD/CAD continues to trade within the ascending channel from earlier this year as it bounced back ahead of the monthly low (1.3590), with a break/close above the monthly high (1.3784) bringing 1.3810 (161.8% Fibonacci extension) on the radar.
• Next area of interest comes in around the April high (1.3846), but USD/CAD may trade within a defined range if it struggles to extend the recent series of higher highs and lows.
• However, USD/CAD may threaten the bullish trend if it fails to hold above the 1.3610 (38.2% Fibonacci retracement) to 1.3630 (38.2% Fibonacci retracement) region, with a breach below the monthly low (1.3590) opening up 1.3540 (50% Fibonacci retracement).

Additional Market Outlooks

USD/JPY Eyes Monthly High Ahead of US PCE Report

US Dollar Forecast: GBP/USD Rally Pushes RSI Towards Overbought Zone

--- Written by David Song, Strategist

Follow on Twitter at @DavidJSong