2-Day Canadian Dollar Rally; Durable Goods Up 1.4%

Key Points:

• The Canadian Dollar (CAD) increased for the second consecutive day.
• U.S. Durable Goods and Non-Defense Capital Goods Orders outperform expectations.
• Diverse perspectives from Federal Reserve officials hint at a cautious approach towards interest rate cuts.
• The futures market leans towards a potential rate cut by the Federal Reserve in June.

As the pre-Easter trading period unfolds, the Canadian Dollar (CAD) showcases its resilience amidst a mild risk appetite environment shaped by the Federal Reserve’s dovish stance. This period, marked specifically by trading activities on Tuesday, provides a rich backdrop for evaluating CAD’s performance against a broader market context. Following the Federal Reserve’s dovish statement, markets have been scrutinised with increased attention amidst economic indicators and central bank views.

Canadian Dollar Climbs for Second Consecutive Day

On Tuesday, the Canadian Dollar notably strengthened for the second day, showing clear momentum against its counterparts, fortifying its position. Despite fluctuating market sentiments, the uptrend in CAD’s value highlights its resilience amid a general appetite for risk. Amid global economic indicators and monetary policy, the Federal Reserve’s dovish announcement significantly influences this performance’s backdrop.

1.4% Rise in Durable Goods, Fed Contemplates Cuts

On Tuesday, the U.S. Dollar notably retreated, highlighting how economic indicators influence currency valuations. February’s U.S. Durable Goods Orders emerged stronger than anticipated, registering a 1.4% increase against a forecasted 1% rise. Similarly, Non-Defense Capital Goods Orders for the same month reported a 0.7% uptick, reversing a 0.4% decline. However, the Conference Board’s Consumer Confidence Index for March took an unexpected dip to 104.7 from February’s 106.7, challenging the projected improvement to 107.00.

Amidst these data points, voices from the Federal Reserve painted a picture of caution and divergence. Chicago Fed President Goldsbee hinted at a potential for three rate cuts. At the same time, Raphael Bostic and Fed Governor Lisa Cook offered more restrained outlooks, suggesting a singular cut in 2024 and advocating for a cautious approach, respectively.

65% Odds on Fed Rate Cut by June, Canadian Dollar Eyes Gains

The futures market predicts a 65% chance that the Federal Reserve will start rate cuts by June, indicating economic shifts. This sentiment is reflected in the technical analysis of USD/CAD, which suggests that the bullish trend for USD/CAD remains unbroken despite CAD’s recent recovery. The currency pair navigates a rising trading channel, with key resistance observed at the trendline resistance of 1.3615 and support steadfast above the 38.2% Fibonacci retracement level at 1.3575.