USD/CAD Exchange Rate Prediction – The Dollar Continues to Rally

The dollar continued to rally versus the Loonie as U.S. short-term treasury yields rose. The markets are focused on the fight against inflation and the decision by President Biden to renominate Fed Chair Powell. Market participants via futures contracts are now pricing 50% chance that the Fed will tighten interest rates in May of 2022.

Technical analysis

The dollar moved higher and is poised to test trend line resistance near 1.28. Support is near the 10-day moving average, 1.2591. The 10-day moving average cross above the 50-day moving average, which means that a short-term uptrend is almost in place. Short-term momentum has turned positive as the fast stochastic generated a crossover buy signal. The exchange rate is overbought with the fast stochastic printing a reading of 91, above the overbought trigger level of 80. Medium-term momentum has turned positive as the MACD (moving average convergence divergence) index is generated a crossover buy signal. This scenario occurs as the MACD line (the 12-day moving average minus the 26-day moving average) crosses above the MACD signal line (the 9-day moving average of the MACD line).

Fighting Inflation

The Fed Chair, along with his new deputy, will be focused on fighting inflation. The President of the United States has received the message from the American people that costs are too high. President Biden introduced his nominations for Federal Reserve Chair and Vice-Chair on Monday and in each of their speeches, they mentioned inflation. The Fed is now poised to fight inflation, and the market is willing to help them along by raising rates immediately. Higher rates will reduce growth and potentially reduce costs.