CAD Rate Outlook: Loonie Awaits Next Move Amid USD Strength

CAD Rate Outlook: Loonie Awaits Next Move Amid USD Strength

The Canadian Dollar finds itself influenced by a surging US Dollar and strong Treasury yields, countering the support of steady crude oil prices. This analysis delves into the dynamics shaping the CAD rate’s trajectory.

Fundamental Backdrop: The US Influence on Canadian Dollar Trends

The Canadian Dollar is currently navigating the impact of dominant US-specific factors, especially the substantial surge in US Treasury yields, which has elevated the USD against major currencies. Even the resilient crude oil market, driven by production constraints, struggles to offset the USD’s strength. Despite this, if US data falters, it could bolster the CAD, given the ongoing tightness in the crude oil market expected throughout 2023.

Economic Calendar Focus: Key Releases and their Potential Impact

The upcoming week, though relatively moderate in terms of economic events, holds key releases with potential repercussions. These include the ISM services PMI, vital considering the US’s service-driven economy, and crucial jobs reports from both Canada and the US, alongside the US PPI. The robustness of the US labour market is a pivotal factor, as any sustained strength could further exacerbate the disadvantages of CAD.

Several technical indicators mark the Canadian Dollar’s daily price action. Most notably, it faces a critical test at the longer-term trendline resistance, aligning with the psychological 1.3700 level. While this zone has held firm since October 2022, extended upper wicks suggest potential resistance by USD/CAD bears. Additionally, bearish/negative divergence indicates potential movement contrary to the Relative Strength Index (RSI), adding a bearish dimension.

Future Trajectory: Anticipating the Next Phase for USD/CAD

Following the Golden Cross, the rally in the USD has pushed it away from the mean (moving averages). This sets the stage for a possible reversion towards the mean. Ultimately, upcoming fundamental factors and central bank statements, primarily from the Federal Reserve, will be instrumental in shaping the next phase of the services CAD movement.

According to IGCS data, retail traders currently hold net SHORT positions on USD/CAD. Approximately 71% of traders maintain short positions, suggesting a mixed sentiment regarding the pair’s future trajectory.

Key Factors at Play: Factors Driving USD/CAD Momentum

The recent rally in the US Dollar Index (DXY) to November 2022 highs, coupled with upbeat US data, are pivotal drivers of the 100 CAD to USD pair’s upward movement. However, it’s essential to watch for shifts in oil prices as they continue to influence the CAD.

The focus remains on critical releases, including the US ADP Employment Change and ISM Services PMI. The highlight of the week, however, will be the release of Canadian employment data and US Nonfarm Payrolls, events that could provide definitive direction to the CAD rate.