USD/CAD Exchange Rate Prediction – The Canadian Dollar Rallies as US Yields Slide
The Canadian dollar rebounded on Tuesday as the USD/CAD currency pair slipped through trend line support, the former breakout level. However, the close is not a positive sign for the currency pair. First, the rejection of the breakout needs to be considered. Second, the yield differential between the U.S. and Canada moved in favor of the Canadian currency. Canadian 2-year yields are trading 19-basis points above their U.S. counterparts. Finally, Fed Chair Jerome Powell testified in front of Congress today and continued to say that monetary policy would remain accommodative. He also noted that inflation acceleration is temporary. His commentary put downward pressure on the greenback.
The USD/CAD reversed course on Tuesday, moving back below a trend line break out and easing into the close of the New York trading session. Support is seen near the 10-day moving average at 1.2242. Resistance is seen near the former breakout trend line near 1,2375. The 10-day moving average crossed above the 50-day moving average, which means that a short-term uptrend is now in place. Short-term momentum is negative. The fast stochastic generated a crossover sell signal in overbought territory and then accelerated lower. Medium-term momentum is positive but decelerating. The MACD (moving average convergence divergence) histogram is printing in positive territory with a declining trajectory which points to consolidation.
Inflation is Temporary According to Powell
Fed Chair Jerome Powell testified in front of Congress on Tuesday. The Fed Chair continued to make dovish commentary despite many congresspeople describing a situation where inflation was beginning to accelerate. The Fed Chair appears willing to allow inflation in the U.S. to run hotter than normal to get the employment rate back down to the level where it was prior to the pandemic.