Title: USD/CAD Forecast: Poised for a Fresh Rally Above 1.4080 as Market Sentiment Shifts
Source: Adapted from a report by FXStreet’s Flavio Tosti
Additional insights and context sourced from Bloomberg, DailyFX, and Trading Economics
The USD/CAD currency pair is showing significant bullish momentum, with strong potential for another rally that could push the pair higher above the 1.4080 resistance level. Backed by growing demand for the US dollar, weakening Canadian economic data, oil price fluctuations, and shifts in monetary policy expectations, the environment remains favorable for an extended USD/CAD uptrend.
This article explores the current technical and fundamental landscape surrounding USD/CAD, examining key catalysts for the latest price action, and assessing whether the bullish trend can sustain in the weeks ahead.
Overview of Recent USD/CAD Performance
The currency pair has retained a bullish structure, recently attempting to break out above key resistance levels near the 1.3950 zone. After briefly dipping to test lower supports during mid-October, traders and investors appear to have regained confidence in the US dollar’s strength against its Canadian counterpart.
– At the beginning of October 2024, USD/CAD consolidated below 1.3900 due in part to uncertainties in crude oil pricing and Bank of Canada (BoC) policy direction.
– Growing geopolitical concerns and mixed Canadian data triggered safe-haven flows into the US dollar, lifting USD/CAD above 1.4000.
– As of mid-October 2024, price action shows that USD/CAD bulls are reasserting dominance, targeting a move toward 1.4080 and potentially beyond.
Technical Analysis: Critical Levels and Trend Structure
A closer analysis of current technical indicators reveals strong underlying bullish sentiment.
– USD/CAD has formed a series of higher lows since mid-September, suggesting the formation of a solid uptrend.
– The pair remains above both the 50-day and 200-day Simple Moving Averages (SMA), indicating medium- and long-term bullish momentum.
– The Relative Strength Index (RSI) on the 4-hour and daily charts remains elevated but not yet overbought, currently around the 60–65 range, suggesting there is room for further upside before exhaustion.
– Support zones are now seen around 1.3890 and then at 1.3800. Both levels were previously resistance.
– Immediate resistance lies at 1.4080, with a clean break above that level likely to open the door for a rally toward the 1.4150 and 1.4225 levels.
Flavio Tosti of FXStreet notes that should USD/CAD maintain the bullish position above the 1.4000 psychological level, the pair would have strong technical momentum to push toward higher resistances if economic conditions remain conducive for further USD strength.
Fundamental Drivers Supporting USD/CAD Strength
Several key factors are contributing to the current bullish outlook for USD/CAD. These include divergent central bank policy paths, fluctuations in commodity prices, and macroeconomic data trends.
1. Diverging Monetary Policies Between Federal Reserve and Bank of Canada
– The Federal Reserve continues to maintain a hawkish bias, emphasizing the need for restrictive policy to tame inflation over a longer period. At the time of writing, Fed Chair Jerome Powell reiterated the importance of keeping rates higher for longer if inflation does not return to target.
– Meanwhile, the Bank of Canada (BoC) has signaled a more cautious stance. Despite previous rate hikes, Canadian policymakers appear concerned about weakening consumer demand and soft labor market data, which could limit further tightening.
– This divergence is increasing interest rate differentials in favor of the US dollar, providing underlying support for USD/CAD.
2. Oil Market Volatility Weighs on Canadian Dollar
Canada is one of the largest exporters of crude oil in the world. Thus, the Canadian dollar is closely tied to oil price performance.
– WTI
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