Title: USD/CAD Extends Its Decline Below 1.3700 Ahead of Federal Reserve Chair Powell’s Remarks
Original Author: Arnab Shome (FXStreet)
The US dollar to Canadian dollar (USD/CAD) currency pair continued its downward trajectory on Monday, falling below the 1.3700 level, as traders showed caution ahead of a critical speech from Federal Reserve Chair Jerome Powell. The currency pair has undergone selling pressure due to a combination of weaker-than-expected US labor market data, heightened investor optimism around the global growth landscape, and stable oil prices that typically lend support to the Canadian dollar. This market environment sets the stage for possible volatility depending on Powell’s tone regarding future monetary policy.
USD/CAD Technical Performance Summary
– The Canadian dollar has strengthened against the US dollar, leading to a continued descent in USD/CAD.
– USD/CAD dropped below the 1.3700 psychological level, confirming short-term bearish momentum.
– Recent price action has broken below the 200-hour Exponential Moving Average (EMA), indicating downward pressure.
– Target support now lies near 1.3660, with further downside risks towards 1.3600 based on technical indicators.
– Key resistance remains at 1.3750 and then 1.3800, with any breakout on Powell’s comments capable of pushing the pair higher.
Market Drivers Behind USD/CAD’s Move
Several macroeconomic and geopolitical developments are influencing the exchange rate between the US dollar and the Canadian dollar.
1. US Labor Market Data
– Recent Non-Farm Payrolls (NFP) data showed a slowdown in hiring, with job additions falling below expectations.
– The unemployment rate in the United States ticked slightly higher to 4.0 percent, a level not seen since 2021.
– The labor slack was reinforced by weaker average hourly earnings and a decline in labor force participation.
– Markets reacted strongly by repricing expectations of a Federal Reserve interest rate cut within this calendar year.
2. Speculation Around Fed Policy
– The upcoming speech by Fed Chair Jerome Powell is viewed as a critical moment for guidance on future monetary direction.
– The CME FedWatch Tool suggests increasing odds of a 25 basis point rate cut in September.
– A dovish tone from Powell could amplify selling pressure on the US dollar.
– Conversely, any statement defending a data-dependent or hawkish policy stance could stabilize the USD.
3. Canadian Economic Positioning
– Canada’s economy is showing resilience, with lower inflation levels compared to the US and relatively solid GDP growth in recent quarters.
– The Bank of Canada (BoC) became the first G7 central bank to initiate rate cuts, slashing its overnight rate by 25 basis points in June.
– Despite the early easing, the Canadian dollar has been supported by higher crude oil prices and stronger-than-expected retail sales.
4. Oil Prices and the Canadian Dollar
– As a net oil exporter, Canada’s economic performance and the loonie are tightly correlated with global oil prices.
– Benchmark Brent crude remains steady around the $85 per barrel level.
– The Organization of the Petroleum Exporting Countries (OPEC+) has continued production cuts, supporting prices.
– Stability in oil markets provides a tailwind for the Canadian dollar, contributing further to USD/CAD’s decline.
5. US Dollar Index and Broad Market Sentiment
– The US Dollar Index (DXY), which tracks USD performance against a basket of major currencies, has also shown recent weakness.
– Traders are preferring riskier assets amid softer US macro data, channeling flows away from USD.
– The DXY dropped to the 104.80 level, making USD less attractive across different currency pairs.
Fundamental Outlook for USD/CAD
With macroeconomic indicators mixed and central bank paths diverging, the USD/CAD pair could remain volatile in the coming weeks.
Key
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