The USD/CAD pair has shown resilience at the start of the week, bouncing from a low of 1.3475 to test the previously established support, now turned resistance, at 1.3550. This rebound follows a substantial sell-off late last week, which had driven the pair to two-month lows, dipping below the 1.3500 mark. Technically, the USD/CAD pair still exhibits a broader bearish trend, although the negative momentum has shown signs of easing. A successful break above the 1.3550 resistance level could pave the way for the pair to target the next resistance at 1.3620. Conversely, key support levels are identified at 1.3475 and 1.3420, which may provide a cushion against further downside movements.
Factors Influencing the Pair's Movement
- US Monetary Policy Outlook: Comments from Federal Reserve Chairman Jerome Powell, emphasizing caution in monetary policy and acknowledging the impact of current restrictive policies on economic growth, have fueled speculation that the Fed might be nearing the end of its rate-hiking cycle. These speculations have led to a decrease in US yields and, subsequently, a weaker US Dollar.
- Cautious Market Sentiment: Investors have adopted a cautious approach, particularly in anticipation of key US economic data releases, including the Nonfarm Payrolls report due on Friday. This report is expected to provide crucial insights into the labor market and potentially influence the Federal Reserve's forthcoming decisions.
- Oil Market Dynamics: As Canada's primary export, oil prices remain a critical factor for the Canadian Dollar. The recent OPEC+ meeting's failure to address oversupply concerns amid a projected global economic slowdown in 2024 has added pressure on oil prices, consequently impacting the CAD.
- Bank of Canada's (BoC) Policy Outlook: Despite the stronger-than-anticipated Canadian employment data released last Friday, market expectations remain that the BoC will pause its rate hikes in the upcoming meeting and possibly begin easing its tightening measures in early 2024.
Technical Analysis and Key Levels
As the USD/CAD pair tests the 1.3550 resistance amid a cautious market mood and various economic factors, traders and investors will closely watch the upcoming U.S. employment data and the BoC's policy decisions. These events, along with oil price trends and broader market sentiment, are likely to significantly influence the pair's trajectory in the near term.