- USD/CAD is gaining 0.39% at the start of the week.
- A gloomy market sentiment, courtesy of the Covid-19 outbreak in China, weighed on oil prices and the CAD.
- Bank of Canada Governor Tiff Macklem said Canada needs higher interest rates because inflation is too high.
- USD/CAD Price Forecast: Tipped to the upside once the 200 DMA was broken around 1.2624.
The USD/CAD rises amid a flight to safe-haven pairs in the forex space, using the US dollar, JPY and CHF as safe havens in a risk-off market mood. Also, falling oil prices and increased bets that the Federal Reserve would raise rates by 0.50% at the May 4-5 meeting boost the dollar’s outlook. At time of writing, USD/CAD is trading at 1.2755 fresh monthly highs at time of writing.
Covid-19 outbreak in China weighed on market sentiment
Global equities post losses. The factors mentioned above and China’s Covid-19 lockdown in Shanghai threaten to slow down the economic recovery. China’s situation is expanding towards Beijing, Reuters reports.
“In Shanghai, the authorities have erected fences outside residential buildings, sparking new public protests. In Beijing, many people have started stockpiling food fearing a similar lockdown after some COVID-19 cases emerged.”
Consequently, commodity prices have fallen, led by the US crude oil benchmark, Western Texas Intermediate (WTI), down close to 5%, trading at $96.70 per barrel, which that weighs on the Loonie linked to raw materials. The production and delivery of petroleum products in Canada contributed just under 10% of the Gross Domestic Product (GDP).
The absence of Monday’s US economic docket left USD/CAD traders adrift before Bank of Canada (BoC) Governor Tiff Macklem and Senior Lieutenant Governor Rogers is scheduled to testify before the Bank of Canada’s Standing Committee on Finance. the House of Commons at 11:00 ET on Monday.
On Monday, BoC Governor Tiff Macklem said inflation is too high and would stay “high” longer than previously thought. He reiterated that inflation is widening and that worries the bank. Macklem added that Canada requires higher interest rates and would not rule out raising rates by more than 50 bps.
USD/CAD Price Forecast: Technical Outlook
USD/CAD broke the previous monthly high from April 13 at 1.2676 and gave the pair new legs as it quickly broke above the 1.2700 figure. It extended its gains and is accelerating the uptrend towards 1.2800. However, the Relative Strength Index (RSI) at 62.19, with its steepest slope, has enough room before reaching overbought conditions.
Given the above, the first resistance for USD/CAD would be 1.2800. A break above would expose a solid supply zone around the 13 Mar daily high at 1.2871, followed by the 7 Mar daily high at 1.2901.
Technical levels
Source: Fx Street
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