USD/CAD is holding firm around 1.3620 after the US ISM services PMI.

• The USD/CAD pair will end the week unchanged after strong US economic data.
• The US ISM Services PMI modestly disappointed estimates, although it remained in expansionary territory.
• The Bank of Canada is expected to keep rates unchanged at 4.50% at the next policy meeting.

He USD/CAD consolidates its bullish position by staying above 1.3600, thanks to the fall in oil prices. Heated discussions within the Organization of the Petroleum Exporting Countries (OPEC) pushed WTI prices down nearly 3%, a headwind for the Canadian dollar (CAD). At the time of writing, USD/CAD is trading at 1.3625.

USD/CAD reached 1.3630 after the release of the US ISM non-manufacturing PMI

Wall Street opened in positive territory. The US ISM Non-Manufacturing PMI for February came in at 55.1, down from the previous month’s 55.2, but above estimates of 54.5, a sign that activity is holding up. The Prices Paid Index sub-component, which was estimated to drop to 64.5, rose to 65.6, down from 67.8 in January, higher than expected, but showing improvement compared to last month.

Following the ISM release, the US Dollar Index (DXY), which measures the value of the dollar, improved towards 104.924, paring some of its earlier losses and remaining nearly flat, while USD/CAD jumped 15 pips to around from 1.3615 to 1.3630.

The members of the US Federal Reserve (Fed) stressed the importance of tackling inflation towards the 2% target. On Thursday, Fed Governor Christopher Waller commented that inflation was not easing as expected and signaled his willingness to raise rates if price pressures do not ease.

Meanwhile, the Wall Street Journal reported that the United Arab Emirates (UAE) is holding an internal debate about leaving OPEC, as the country has been seeking permission to increase its crude production. Consequently, WTI fell 3% towards three-day lows before regaining some ground.

In Canada, building permits – a leading indicator of the economy – fell 4% in January compared to December and 5% year-on-year, according to data revealed by Statistics Canada. The decline was fueled by aggressive rate hikes by the Bank of Canada (BoC).

The BOC announced a pause in its tightening cycle and rates are expected to remain around 4.50% at its next meeting.

Therefore, the USD/CAD is expected to continue appreciating, despite analysts estimating a stronger loonie this year. Improving global economic prospects would undermine USD/CAD as yield-seeking traders turn to high-beta currencies such as the Loonie (CAD). In an alternative scenario, interest rate differentials between the Fed and the BoC would likely favor the US dollar; therefore, a further USD/CAD rally is anticipated.

USD/CAD Technical Levels