**USD/CAD Outlook: Bullish Momentum Continues as U.S. Dollar Recovers Strength**
*Original Article by Matthew Weller via Forex.com*
The USD/CAD currency pair has resumed its strong bullish trajectory, buoyed by a resurgent U.S. dollar and softened performance from the Canadian dollar in recent trading sessions. Amid shifting expectations around interest rates, diverging economic momentum between the U.S. and Canada, and evolving oil prices, forex traders are leveraging macroeconomic indicators and central bank policies to position themselves within this North American currency pair.
This expanded analysis explores the fundamental and technical landscape impacting the USD/CAD pair, highlighting why the pair maintains a strong bullish bias as of mid-October 2024.
## Key Drivers Behind USD/CAD Bullish Bias
There are multiple contributing factors driving USD/CAD higher in recent weeks. The following are the most influential:
### 1. U.S. Dollar Regains Confidence
The U.S. dollar has experienced a broad recovery against its G10 counterparts, supported by robust economic data and a hawkish tone from the Federal Reserve. Several key factors have strengthened the greenback:
– **Resilient Labor Market**: U.S. nonfarm payrolls exceeded expectations for several months in a row, indicating that the U.S. economy retains underlying strength.
– **Sticky Inflation**: The latest Consumer Price Index (CPI) report showed elevated core inflation, particularly in services. Headline inflation printed around 3.7% year-over-year, above the Fed’s 2% target.
– **Federal Reserve’s Stance**: While interest rates have remained steady in recent months, Fed Chair Jerome Powell reinforced expectations that rates could stay higher for longer, especially given persistent inflation and a strong job market.
– **Treasury Yields Climb**: U.S. 10-year Treasury yields have surged past 4.6%, making dollar-denominated assets more attractive relative to other currencies.
With bond yields and inflation expectations on the rise, investors are favoring the dollar, pushing up the USD/CAD exchange rate.
### 2. Weakened Canadian Dollar
In contrast to the greenback’s strength, the Canadian dollar has struggled due to a mix of unfavorable domestic data and external pressures:
– **Softening Economic Growth**: Canada’s GDP showed stagnation in Q2 2024, and early data for Q3 suggests that economic momentum may be further weakening. Consumer spending has slowed, and job creation is lagging U.S. levels.
– **Dovish Bank of Canada (BoC)**: While the BoC previously hinted at further tightening to combat inflation, recent statements have become more muted. Policymakers are now more inclined to pause or even reverse rate hikes if domestic risk factors worsen.
– **Falling Oil Prices**: Crude oil, a key Canadian export, has experienced volatility in 2024 due to global demand uncertainty and concerns about oversupply. This has directly impacted the Canadian dollar, as its valuation is tied closely to energy prices.
Taken together, these factors have diminished support for the loonie and allowed the USD/CAD pair to march higher.
## Technical Analysis: Bullish Continuation Pattern
According to technical research from Forex.com’s Matthew Weller, the USD/CAD pair remains firmly within an uptrend channel, respecting key support and resistance levels.
– **Support**: The 1.3600 level has served as a steadfast support in recent sessions, bolstered by buying volume and technical indicators such as the 50-day EMA.
– **Resistance**: The pair is targeting the psychological and technical level of 1.3800. A clean break above this could open the door to the March and October 2023 highs near 1.3860 and 1.3900, respectively.
– **Relative Strength Index (RSI)**: The RSI on the daily chart is approaching overbought territory near 70, suggesting strong bullish
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