The Dollar Breaks Out to 2022 Highs Versus the Loonie

Key Insights

• The dollar broke out to 2022 highs. 
• Treasury yields moved higher, buoying the greenback.
• Oil prices traded higher but failed to buoy the Loonie.

USD/CAD broke out to 2022 highs. The upcoming 50-basis point Fed rate hike underpins a bullish outlook for the dollar. Treasury yields moved higher, reaffirming hot inflation.

The supply chain is still constrained, and prices continue to rise. The ISM Prices Index registered 84.6, down 2.5 percentage points compared to the March reading of 87.1 percent, indicating raw materials prices increased for the 23rd consecutive month at a slower rate in April. Despite the small pullback, the level is elevated.

The ISM’s index of national factory activity fell to a reading of 55.4 last month, the lowest since July 2020, from 57.1 in March. Economists polled had forecast the index is rising to 57.6. The second straight monthly decline in the index also reflects spending rotating back to services like travel.

Technical Analysis

The USD/CAD broke out to fresh 2022 highs. The currency pair is headed for its fifth consecutive weekly gain. The pair has a bullish outlook, with Fed tightening acting as a tailwind for the dollar.

Resistance is seen near the December highs at 1.2965. Support is seen near the 20-day moving average of 1.2650. the 20-day moving average crossed above the 50-day moving average, which means that a medium-term uptrend is now in place.

Short-term momentum turns positive as the fast stochastic might have a crossover buy signal. Medium-term momentum is positive as the MACD line generated a crossover buy signal.

This scenario happens when the MACD line (the 12-day moving average minus the 26-day moving average) crosses the MACD signal line (the 9-day MA of the MACD line). The trajectory of the MACD is in positive territory, which reflects an upward trend in price movement.