USD/CAD recovers near 1.2650 after US data.

• USD/CAD recovers some ground and is positive for the week, up 0.42%.
• The BoC’s Macklem said the Canadian economy is overheating and needs higher rates.
• USD/CAD Price Forecast: A Break Above 1.2700 Would Give Buyers Control; otherwise, a further drop is expected.

The USD/CAD it rebounds from weekly lows around 1.2510 and advances strongly during the American session, amid an environment of risk appetite in the market that boosted the USD and safe-haven currencies in the currency space. Trading at 1.2647, the USD/CAD is posting gains of 0.71% at the time of writing.

High US Treasury yields, dollar strength and falling oil prices weigh on the CAD

On Thursday, USD/CAD is moving higher, spurred on by higher US Treasury yields. The 10-year Treasury bond yield stands at 3.055%, up two basis points, and supports the dollar. The dollar index, an indicator of the value of the greenback, stands at 102.977, gaining almost 0.50%, which is a tailwind for USD/CAD.

The drop in crude oil prices is also weighing on the Loonie. Western Texas Intermediate (WTI), the benchmark US crude, stands at $121.83 per barrel, losing 0.27%.

Meanwhile, US economic data showed jobless claims for the week ending June 4 rose to 229,000, above the 210,000 expected. Sources quoted by Bloomberg said: “However, while we think labor markets currently remain fairly tight, we can’t totally rule out the idea that the rise in applications is a sign of a modest rise in layoffs.”

Meanwhile, Bank of Canada (BoC) Governor Tiff Macklem crosses the wires. Asked if households could withstand a hike of more than 50 basis points, he said the bank has to take a bigger step. He added that the chances of rates rising above 3% have increased, meaning the BoC would need more or bigger rate hikes.

Macklem added that the Canadian economy is overheating and needs higher rates.

On Friday, the Canadian economic docket will release employment data. At the same time, the US calendar will announce US inflation figures, with the Consumer Price Index (CPI) expected to rise to 8.3%. Excluding volatile items, it is expected to come in at 5.2%.

USD/CAD Price Forecast: Technical Outlook

USD/CAD has a neutral-bearish bias, despite a two-day rally of nearly 130 pips. The thesis is reinforced by the Relative Strength Index (RSI), which at 45.18 points to the upside, but unless it crosses the bullish territory, it could turn lower. Also, if the daily moving averages (DMAs) stay above the exchange rate, that would favor sellers, giving them better price entries.

For USD/CAD to turn to a neutral bias, buyers need to push the pair above the confluence of the 100 and 200 DMAs at 1.2658-1.2700. Once surpassed, this would pave the way for further gains. Otherwise, the first support for the USD/CAD would be 1.2600. A break below would expose the June 8 low at 1.2517, followed by the June 25 low at 1.2458.

Technical levels