**USD/CAD Extends Gains, Eyes 1.3850: A Deep Dive into the Drivers and Outlook**
*Originally reported by EconoTimes. This expanded article builds upon the original piece by offering a more in-depth analysis of recent USD/CAD price action and the fundamental and technical factors influencing the pair.*
The USD/CAD currency pair has been on a strong upward trajectory, recently extending its gains and aiming towards the psychological resistance level at 1.3850. Driven by a combination of robust U.S. economic data, broad U.S. dollar strength, and softness in crude oil prices, the pair is exhibiting strong bullish momentum.
Let’s explore what’s currently driving the USD/CAD exchange rate, the macroeconomic backdrop influencing the pair, and what traders should watch out for in the coming sessions.
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## Latest Price Action Overview
As of recent trading sessions, the USD/CAD pair has been moving higher, advancing firmly above the 1.3800 pivot. The pair seems well-supported by bullish sentiment in the U.S. dollar and is moving with upward momentum as market participants eye the next resistance barrier at 1.3850.
– **Current price:** Hovering near 1.3830-1.3840 levels as of late April 2024
– **Immediate resistance:** 1.3850, followed by 1.3900
– **Support levels:** 1.3780 and 1.3700
– **Momentum indicators:** Favoring bulls; relative strength index (RSI) remains above 60
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## Fundamental Drivers of USD/CAD Strength
### 1. U.S. Dollar Strength Across the Board
The U.S. dollar has been gaining strength supported by solid macroeconomic performance in the United States and the expectations surrounding the Federal Reserve’s monetary policy stance.
– **U.S. economic resilience:** GDP growth remains strong, non-farm payrolls data continue to beat expectations, and consumer confidence remains stable.
– **Sticky inflation:** Inflation in the U.S. is showing signs of being persistent, prompting expectations that the Federal Reserve will maintain higher interest rates for longer.
– **Interest rate differentials:** The Federal Reserve’s higher-for-longer policy stance contrasts with the more dovish monetary posture of the Bank of Canada. This adds upward pressure to USD/CAD.
The U.S. Dollar Index (DXY), which tracks the dollar against a basket of major currencies, is back on an upward incline, signaling broad-based demand for the greenback.
### 2. Weakness in Crude Oil Prices
Canada is a major oil exporter, and the Canadian dollar typically exhibits a positive correlation with crude oil prices. Recently, oil markets have been under pressure due to:
– **Rising inventories:** The U.S. Energy Information Administration (EIA) reported higher-than-expected crude oil stockpiles.
– **Weak Chinese demand:** Concerns about sluggish growth in China, which is a key consumer of crude, have dented oil demand forecasts.
– **Geopolitical stability:** No fresh geopolitical tensions affecting oil supply chains have emerged recently, reducing the risk premium on oil.
With WTI crude dipping below $80 per barrel, the Canadian dollar has lost some of its energy-based support, further allowing USD/CAD to rise.
### 3. Bank of Canada’s Dovish Outlook
While the Federal Reserve remains hawkish or neutral depending on data, the Bank of Canada (BoC) has shown increasing concern about economic softness and may be nearing rate cuts.
Key points influencing BoC’s outlook:
– **Slowing economic growth:** Canada’s GDP growth has tapered off, and the housing sector remains under pressure.
– **Inflation cooling:** While inflation remains above the BoC’s 2% target, it has been trending downward.
– **Potential rate cuts:** Market participants are beginning to price in at least one rate cut by the BoC in the second half of
Read more on USD/CAD trading.