**USD/CAD Retreats Toward 1.3830: Central Banks in the Spotlight**
*By Yohay Elam, FXStreet. Rewritten and expanded with additional context and details.*
The USD/CAD currency pair pulled back from recent highs during early European trading hours on Monday. After touching its highest level since November 2023, near 1.3870, the pair began to lose momentum and slipped toward 1.3830. The retracement comes as traders adopt a cautious stance, with significant attention focused on upcoming central bank meetings and key economic data releases.
The recent movements in USD/CAD can be attributed to several overlapping market drivers, including diverging monetary policies between the Federal Reserve and the Bank of Canada (BoC), developments in the global oil market, and broader risk sentiment across financial markets.
This article provides a comprehensive overview of the latest USD/CAD movements, analyzes contributing factors, and highlights what traders should watch in the days ahead.
## USD/CAD: Current Performance
– USD/CAD rose early in the Asian session, breaching the 1.3850 level before retreating toward 1.3830 later in the European session.
– On Friday, the pair rallied over 120 pips, boosted by strong U.S. economic data and hawkish sentiment surrounding the Federal Reserve’s monetary policy outlook.
– As of the latest update, the pair trades around the 1.3830 zone, with intraday support likely found near 1.3800 and psychological resistance sitting just under the 1.3900 handle.
## Strong U.S. Economic Data Supports the Dollar
The USD surged across multiple pairs late last week after the release of better-than-expected U.S. economic figures. Notably, a strong consumer confidence report and sturdy labor market data fueled expectations that the Fed may delay interest rate cuts further into the year.
### Key U.S. Data Highlights:
– **Consumer Confidence (University of Michigan)**: The preliminary April reading for the University of Michigan Consumer Sentiment Index came in at 77.9, above the forecast of 76.5, signaling increased optimism.
– **Inflation Expectations**:
– 1-Year Inflation Expectations rebounded to 3.1%, up from 2.9% in March.
– 5-Year Inflation Expectations rose to 3.0%, suggesting that medium-term price pressures remain a concern for the Federal Reserve.
These data points affirmed investors’ fears that the Federal Reserve is in no rush to pivot away from its restrictive monetary stance. Hotter-than-expected inflation data from earlier in April has already pushed back the timeline for rate cuts, which markets now expect in the second half of 2024.
## Federal Reserve Outlook: Hawkish Sentiment Lingers
Jerome Powell, Chair of the Federal Reserve, is expected to maintain a cautious approach during the upcoming Federal Open Market Committee (FOMC) meeting scheduled for April 30 to May 1. Recent rhetoric from Fed officials has reiterated that inflation progress is uneven, and any premature easing might derail the central bank’s inflation-fighting goals.
### Fed Policy Expectations:
– The latest CME FedWatch Tool data shows a significant reduction in the probability of a June rate cut, now sitting below 20% as of mid-April 2024.
– Market participants now anticipate only one or two rate cuts in 2024, compared to earlier expectations of four or more.
This hawkish pivot in market sentiment has bolstered the U.S. Dollar, as higher interest rates attract yield-seeking capital inflows.
## Bank of Canada: A More Dovish Tone?
In contrast to the Federal Reserve, the Bank of Canada has shown early signs of shifting toward a more dovish policy tone. In its April policy statement, the BoC kept interest rates unchanged at 5.0% but acknowledged that inflationary pressures appear to be easing, opening the door for potential rate cuts in the
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