Title: USD/CAD Trades Below 1.3950 After Retreating from Recent Four-Month Highs
Original reporting credit: FXStreet News Team
The USD/CAD currency pair experienced a noticeable retreat in the latest trading session after touching its highest level in four months. Despite recent bullish momentum that supported the US dollar’s advance, the pair pulled back on Friday, slipping below the 1.3950 mark. Analysts attribute the retracement to a combination of falling US Treasury yields, softening in the greenback, lackluster economic data, and renewed speculation over rate cuts by the Federal Reserve.
This article will explore the reasons behind the recent USD/CAD movement, broader macroeconomic factors influencing both currencies, and various outlooks from analysts and investors. Additional insights have been included to offer a more thorough analysis of the forex pair’s trajectory.
Highlights
– USD/CAD retreated from highs of around 1.3970–1.3980 seen earlier in the week.
– Resistance near the 1.3950 level remains intact.
– The US dollar eased as traders repriced expectations on future Federal Reserve rate decisions.
– Canadian dollar gains marginal strength despite ongoing concerns about domestic economic slowdown.
Overview of Recent USD/CAD Movement
The USD/CAD rally, which had propelled the pair to levels not seen since December 2023, lost momentum Friday as the greenback came under renewed pressure. The pullback dropped the pair below the 1.3950 resistance level. While the USD has been relatively strong against most majors throughout April, primarily due to its safe-haven appeal and higher US interest rates, the latest data suggests a shift in investor sentiment.
Key Price Levels
– Immediate resistance: 1.3950
– Next major resistance: 1.3980 (multi-month high)
– Near-term support: 1.3900, followed by 1.3850
Technical Indicators
– 200-day Exponential Moving Average (EMA) is trending higher, supporting the longer-term uptrend.
– Relative Strength Index (RSI) indicates overbought conditions, suggesting potential for continued correction.
– Bollinger Bands are beginning to contract, which signals reduced volatility in the near term.
Factors Influencing USD Weakness
Several macroeconomic and policy-related developments have played a critical role in weakening the USD recently, which in turn has pressured USD/CAD.
1. Soft US Economic Data
Economic indicators released this week reflect cooling momentum in the US economy:
– US Gross Domestic Product (GDP) for Q1 showed slower-than-expected growth.
– Durable goods orders declined by 0.8% in March, worse than the consensus forecast.
– Initial jobless claims also ticked up unexpectedly.
These data points reinforce the view that the US economy may be slowing and that the Federal Reserve could act sooner to reduce rates.
2. Falling US Treasury Yields
– The yield on the benchmark 10-year Treasury note dropped to around 4.50% after peaking above 4.70% earlier in April.
– Lower yields make USD-denominated assets less attractive to investors chasing returns, weakening demand for the dollar.
3. Fed Rate Cut Expectations
Though the US Federal Reserve has maintained a cautious stance, markets now predict rate cuts during the latter half of 2024:
– Fed funds futures suggest a 60% probability of at least one 25 basis point rate cut by September.
– Recent comments from Fed officials like Raphael Bostic and Austan Goolsbee indicate growing concern about economic conditions, though they reaffirm patience in policy timing.
Canadian Dollar Fundamentals
The Canadian dollar (CAD), also known as the loonie, remains tethered to several key themes: domestic economic performance, oil prices, and Bank of Canada (BoC) monetary policy.
1. Energy Prices Support CAD
– Canada is a net exporter of crude oil, which makes CAD sensitive to
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