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USD/CAD slides towards 1.2500, struggles despite dollar weakness

  • The Loonie extends its weekly gains, up 0.8% so far against the US dollar.
  • The Russia-Ukraine conflict remains deadlocked in negotiations, while the US and the EU agreed on the supply of natural gas.
  • Goldman Sachs and Citigroup expect two 50bp hikes from the Fed.
  • USD/CAD Price Forecast: The positive divergence between the RSI and the price action on the 1 hour chart suggests a move to the upside is ahead.

The USD/CAD extends its losses on the week, however appears to face strong support around 1.2500, amid a mixed mood from the market, “hardline” Fed policymakers and two South American-based banks North, which expect two consecutive increases of 50 bp. by the US central bank at the May and June meetings. At time of writing, USD/CAD is trading at 1.2509.

Market sentiment remains fragile, albeit mixed, as shown by the fluctuations in US equities, while European equities remain higher. The dollar is trading weaker, as reflected by the US Dollar Index down 0.13% to 98.660, while US Treasury yields continue to reflect the Fed’s dovish stance, with the yield on 10-year Treasury bonds rose eleven basis points to 2,453%.

The problems of the war between Russia and Ukraine continue to influence the market mood, although in a lower tone. The Russian negotiator said that Ukraine and Russia agreed on secondary issues, but on primary issues, the discussions languished. Meanwhile, the US and Europe reached an LNG (Liquefied Natural Gas) deal to reduce the Eurozone’s dependence on Russia.

Oil prices fell from daily highs to $110.25 in the headline, capping the Canadian dollar’s rise against the US dollar.

Goldman Sachs and Citigroup among market players expecting 50bp hikes

On the other hand, Goldman Sachs and Citigroup are the two banks mentioned in the first paragraph, which expect at least two 50bp hikes at the May and June meetings. Also, in a note to clients, Citigroup said they expect four 50bp hikes in the fed funds rate in 2022.

Canada’s economic docket has the budget balance for January, and Bank of Canada Governor Kozicki would cross the wires. On the US front, the Fed’s speech continues with New York Fed President John Williams also backing a 50 bps hike, stating, “If it is appropriate to raise 50 bps in a meeting, I will.

Additionally, February Pending Home Sales contracted 4.1% vs. the expected increase of 1% m/m. Additionally, the University of Michigan Consumer Sentiment Index for March came in at 59.4 from 59.7, while inflation expectations remained at 5.4% vs. 4.9% in the previous report.

USD/CAD Price Forecast: Technical Outlook

USD/CAD’s decline extends into the week, although as seen on the 1 hour chart, USD/CAD appears to have reached solid support in the 1.2500 area. Also, the Relative Strength Index (RSI), a momentum indicator, is at 38.31, although in a bearish area, it shows a positive divergence with USD/CAD price action, suggesting there could be a move higher in letters.

If that scenario plays out, the first resistance for the USD/CAD would be the 50 hourly simple moving average (SMA) at 1.2547. A break of the latter would expose a six-month uptrend line around 1.2570, followed by the March 24 daily high at 1.2586 and the March 23 daily high at 1.2605.

Technical levels

Source: Fx Street

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