- USD/CAD erases Monday’s gains and trades near its close.
- Risk appetite in the market weighed on the USD, which slightly boosted the CAD.
- The Fed and BoC will aggressively raise rates in 2022, as money market futures show.
- USD/CAD Price Forecast: The pair is biased lower.
The USD/CAD It has barely remained sideways during the American session after a volatile session on Monday, which pushed the pair towards a weekly high at 1.2592, then pulled back towards the 1.2510 area. At time of writing, USD/CAD is trading at 1.2514.
Geopolitical situation in Ukraine progressed, lifting market sentiment
On Tuesday, market sentiment improved as talks between Russia and Ukraine have been constructive, Russian negotiator Medisnky said. In addition, reports emerged that a meeting between Putin and Zelenskiy might be possible. At the same time, the Ukrainian negotiator noted that Ukraine’s neutral status would mean that there would be no foreign military bases in the country.
Meanwhile, Philadelphia Fed President Patrick Harker made a statement. Harker noted that US inflation would be around 4% in 2022, adding that the US central bank had “misjudged” the effect of fiscal spending on inflation. He joined the list of legislators who do not rule out a 50 bp increase in the Federal Funds Rate. Harker commented that the QT could add the equivalent of two quarter-point rate hikes to the Fed’s tightening.
Money market futures are expecting six more rate hikes by the Fed in 2022. Indeed, some market players are expecting two 50bp hikes at the May and June meetings. Meanwhile, regarding the Bank of Canada, money markets are pricing “between 200 and 225 basis points in the remaining six interest rate announcements in 2022, up from 140 basis points before a blockbuster jobs report this month,” according to Reuters.
USD/CAD Price Forecast: Technical Outlook
The USD/CAD decline seems to have bottomed out, although the Relative Strength Index (RSI), at 38.05, almost horizontal, never reached oversold conditions, which means that USD/CAD could consolidate before continuing lower.
That said, and once the daily moving averages (DMAs) are above the spot price, the USD/CAD path of least resistance is to the downside. The first support of the USD/CAD would be 1.2500. Once cleared, the next demand zone to test would be the daily low of 1.2465 on March 25, followed by the daily low of November 10, 2021 at 1.2386, and then the daily low of October 2021 at 1.2288.
Additional technical levels
Source: Fx Street
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