**USD/CAD Price Forecast: Continued Upside Potential Above 1.4000 Driven by Strength in US Dollar**
*Original reporting by Arnab Shome, FXStreet*
The US dollar remains resilient across global markets, and this strength is echoing significantly in the performance of the USD/CAD pair. As investors grapple with evolving expectations of monetary policy, strong US economic data, and widening interest rate differentials between the US and Canada, the pair seems to be targeting a sustained move above the psychological 1.4000 handle. Several supportive technical, fundamental, and macroeconomic factors are aligning to support the bullish outlook for the pair.
## Key Drivers of USD/CAD Upside Momentum
A convergence of fundamental and technical elements is powering the strong upside momentum in USD/CAD. The following are major contributors:
### 1. Strong US Dollar Backdrop
The rally in the US dollar, fueled by robust economic data and hawkish Federal Reserve policies, is a primary driver of gains in USD/CAD.
– **Yield-driven optimism**: US Treasury yields, especially on the long end, have risen sharply in recent weeks. The yield on the benchmark 10-year Treasury note has touched multi-year highs above 4.8%. This is attracting capital flows into the US dollar and increasing its appeal as a safe-haven and yielding asset.
– **Market repricing of Fed expectations**: Recent comments from Federal Reserve officials suggest a “higher-for-longer” narrative on interest rates. The futures market now sees fewer rate cuts in 2024 than anticipated just a few months ago, pushing the DXY (US Dollar Index) to its highest level since November 2022.
### 2. Canada’s Consumer and Labor Data Weighs on CAD
Domestic economic data in Canada has not been as supportive of CAD strength.
– **Labor market softens**: The Canadian labor market delivered mixed signals in recent releases. While employment increased slightly, the unemployment rate ticked up to 5.5%, signaling a potentially softening job market. Wage growth also slowed, suggesting easing inflationary pressures.
– **Bank of Canada (BoC) policy divergence**: The BoC is widely expected to pause its rate hikes or potentially consider rate cuts in 2024 due to subdued economic growth and moderating inflation. This contrasts sharply with the Fed’s more hawkish outlook.
### 3. Crude Oil Volatility Undermines CAD
Canadian dollar, being a commodity-linked currency, is highly sensitive to fluctuations in crude oil prices. While oil remained volatile amidst geopolitical turmoil and rising tensions in the Middle East, the correlation between the loonie and crude has recently weakened.
– **Geopolitical risks add to global uncertainty**: Concerns over potential supply shocks have led to increased volatility in WTI crude prices, which, despite some recovery above the $85-per-barrel level, have not found sustained bullish momentum.
– **Oil-CAD correlation weakens**: Despite rebounding oil prices, the Canadian dollar has not been able to capitalize, indicating that broader USD strength is overpowering commodity linkages.
## Key Technical Levels
The technical structure of the USD/CAD pair supports a bullish outlook with the possibility of a break above the 1.4000 resistance level in the coming days.
### Support and Resistance:
– **Immediate resistance**: 1.3785 (October 6 high), followed by 1.3850 and 1.3900 as intermediate targets
– **Key psychological hurdle**: 1.4000
– **Support levels**: 1.3660 (20-day SMA) followed by 1.3560 (previous breakout zone)
If the price manages to breach and close above 1.4000 on a daily and weekly basis, the pair could aim for fresh multi-year highs. A rejection from that level might lead to profit-taking but is unlikely to alter the prevailing bullish trend unless broader macroeconomic dynamics shift
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