Rewritten and Expanded Article Based on: “USD/CAD: Breaking the ‘Sticky’ 1.36 Handle Unlikely Soon – TDS” from eFXdata.com
Original Author: eFXdata
Title: USD/CAD Outlook: Challenges Persist in Breaking Above 1.36 in the Near Term
The USD/CAD currency pair continues to test the critical 1.36 resistance level but has met persistent difficulty in maintaining a break above that region. Analysts at TD Securities (TDS) provide nuanced insight into why this level remains a ceiling for price action and why it is unlikely to be broken convincingly any time soon. Present macroeconomic trends, diverging central bank policies, and mixed market sentiment have contributed to a volatile situation in the USD/CAD exchange rate.
This article dives deeper into TDS’s perspective, expanding on the economic indicators, policy dynamics, and broader market forces shaping the outlook for this currency pair.
Key Points from the Analysis
According to TD Securities, the Canadian dollar is holding relatively stable amid a global economic environment that fluctuates between risk-on and risk-off sentiment. TDS believes that USD/CAD will struggle to break above the 1.36 level due to multiple market factors. Below are the key reasons driving this sentiment:
Limited Directional Momentum for CAD or USD
• Both the Canadian dollar (CAD) and the US dollar (USD) lack a strong common directional catalyst over the near term
• Canadian economic data has been soft but not soft enough to provoke aggressive policy easing sentiment, leaving the Bank of Canada (BoC) in a wait-and-see stance
• Similarly, the USD is supported by robust labor market data and sticky inflation, but not sufficiently so to drive aggressive dollar-buying behavior
Range Trading Dominates in the FX Market
• A notable lack of consensus among traders has led to range-bound trading behavior across major currency pairs, including USD/CAD
• Investors are closely watching for clearer macroeconomic signals potentially emerging from upcoming inflation data or central bank meetings
• In the absence of a clear trend, traders have largely defaulted to defending key technical levels like 1.36
Canadian Dollar Resilience Despite Soft Economic Data
• While the Canadian economy has shown signs of weakening—especially in areas like consumer demand and the housing market—this has not yet translated into meaningful Canadian dollar (CAD) depreciation
• This resilience stems in part from crude oil prices, which have provided some support to the CAD as oil remains a crucial export for Canada
• Additionally, the relative positioning of global portfolios appears neutral, neither favoring nor disfavoring CAD
Bank of Canada’s Cautious Policy Approach
The BoC has not taken a definitive stance toward either further tightening or immediate easing. This policy positioning has created a degree of policy ambiguity that has influenced the CAD’s range-bound behavior.
Expected Policy Stance of the Bank of Canada:
• BoC may opt to stay on hold in the medium term
• Forward guidance has shifted toward emphasizing data dependence, particularly inflation and labor market trends
• Some market participants had anticipated rate cuts due to economic deterioration, but recent communication suggests those expectations may be premature
Comparison with the Federal Reserve’s Policy Path
In contrast to the BoC, the US Federal Reserve has signaled a more hawkish tone, citing persistent inflation as a key concern. However, the Fed’s hesitation to cut rates has not done enough to create new upward momentum for the USD across the board.
Federal Reserve Likely to:
• Maintain interest rates at elevated levels for an extended period
• Await clearer signs of inflation moderation before committing to any rate cuts
• Depend heavily on labor market indicators and retail figures to assess economic health
Oil Price Influence on CAD Stability
Crude oil plays a critical role in CAD valuation due to Canada’s position as a major petroleum exporter.
Impact of Oil in FX Strategy:
• Stable or rising oil prices offer a level of support to CAD, especially
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