Baxia Markets
June 05, 2024

USDCAD Breaks Key Resistance, Eyes Higher Ground

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The USDCAD currency pair strengthened early Wednesday in Asia, trading around 1.3678. This uptick comes amid a broad decline in the US dollar (USD), which dipped to the 104.00 support level on Tuesday. Market focus now shifts to the Bank of Canada's (BoC) interest rate decision later today.

The BoC has held its benchmark rate at 5.0% since July 2023. However, with signs of cooling inflation in Canada, markets widely expect a 25 basis point (bps) cut to 4.75%. If the BoC lowers borrowing costs, it could further diverge from the US Federal Reserve's policy stance, potentially weakening the USD against the CAD.image-png-Jun-05-2024-07-44-38-7025-AM

On the USD front, disappointing inflation data earlier this year has fueled speculation of a Fed rate cut as early as September. While markets see a low probability of a July rate cut (around 14%), expectations for a September cut are above 50%. The Fed's next meeting is scheduled for July 30-31.

Technically, the USDCAD chart on the 1-hour timeframe shows a bullish reversal with a golden cross confirmed by the 50-day and 200-day EMAs. The Ichimoku indicator is also transitioning towards bullish, with confirmation pending when the Tenkansen line crosses above the cloud.

Significantly, the price recently broke above a key resistance zone between 1.3675 and 1.3665, which is now acting as potential support. If this support holds, further upside could be seen.

Bullish momentum indicators like MACD and RSI remain in positive territory but suggest a potential pullback. The RSI recently exited overbought conditions, while the MACD histogram is currently below the signal line, indicating that bulls might be taking a breather ahead of the BoC announcement.


Key Takeaways

  1. USDCAD strengthens on anticipation of a dovish BoC decision.
  2. Markets expect a 25 bps rate cut by the Bank of Canada.
  3. Technical indicators suggest a bullish reversal in USDCAD.
  4. Broken resistance zone at 1.3675-1.3665 now acting as support.
  5. Weakening USD due to potential Fed rate cut in September.

Key Economic Releases to Watch Today

CAD, Labor Productivity

Forecast -0.2% vs Previous 0.4%

USD, ADP Nonfarm Employment Change 

Forecast 173K vs Previous 192K

USD,  S&P Global Services PMI 

Forecast 54.8 vs Previous 51.3

CAD, BoC Interest Rate Decision

Forecast 4.75% vs Previous 5.00%

USD, ISM Non-Manufacturing PMI

Forecast 51.0 vs Previous 49.4




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