- USD/CAD starts the week lower, down 0.13%.
- The Canadian 10-year bond yield hit a 52-week high, a headwind for USD/CAD.
- USD/CAD Price Forecast: Extend Your Losses If It Holds Below 1.2700.
The USD/CAD fell to fresh two-month lows near 1.2535 in the North American session as sellers point to a challenge to year lows, while the Canadian 10-year bond rate hits a 52-week high at 3.171%. However, at 1.2576, USD/CAD regains some ground, although it continues to reflect the market’s appetite for riskier assets as safe-haven peers fall.
Risk appetite and the USD/CAD tailwind
Sentiment is positive due to China’s easing of coronavirus restrictions and following Friday’s upbeat US jobs report, as reflected in global stocks posting gains. In addition, China’s Caixin Services and Composite PMIs were better than expected, although still in contraction territory, but eased fears of a further slowdown in the second largest economy. Consequently, the Loonie rises, despite the drop in WTI, it was up 0.05%, trading at $118.78 per barrel.
Meanwhile, the US Dollar Index, a gauge of the dollar’s value, remains above 102,000 but erases some of Friday’s gains, down 0.04% to settle at 102,123. Contrary to the above, US Treasury yields rise to a four-week high of 3,025% as investors assess the pace of Federal Reserve tightening.
San Francisco Fed President Mary Daly said “I’m going to get to that meeting in September and if I don’t see compelling evidence (of lower inflation) then it could easily be a 50 bps at that meeting as well. There’s no no reason why we need to make that decision today, but my starting point will be whether we need to do another 50 or not.
Last week, the Bank of Canada raised interest rates by 50 basis points, as expected, to the threshold of 1.50%. Also, the statement was more aggressive than anticipated, according to analysts at TD Securities in a note, as the central bank said it was “prepared to act more forcefully if necessary.”
As for the data, a missing Canadian and US economic docket keeps investors evaluating last week’s data. On the Canadian front, first quarter GDP surprised to the downside, in part due to weak exports. However, the S&P global PMIs rose on the manufacturing index.
In the case of the US, the ISM PMIs were mixed but remained above the 50 midline, showing the economy is cooling but not in recession territory. In addition, the non-farm payrolls report for May came in better than expected, reinforcing the case for a Fed hike at the June meeting.
USD/CAD Price Forecast: Technical Outlook
USD/CAD fell below 1.2540, but in the last few minutes bounced off two-month lows and is trading above June 2 lows at 1.2564. Despite the currency’s rally, USD/CAD traders should note that the currency’s bias is tipped to the downside as the daily moving averages (DMAs) remain above the exchange rate, albeit without direction. , and the RSI remains in negative territory, pushing down.
Therefore, the first support for USD/CAD would be the June 6 low at 1.2535. A break below would expose the June 25 low at 1.2458, followed by the year’s low at 1.2402.
Technical levels
Source: Fx Street
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