USD/CAD Faces Downward Pressure as Rising Oil Prices Underpinned the Loonie

Insights

• The dollar strengthened as Euro was weighed down by talk of new sanctions
• Several parts of the yield curve inverted, signaling a possible recession
• Gold and silver prices rose due to the possibility of new sanctions on Russia
• Oil prices climb as European countries might place new sanctions on Russia’s energy sector

The dollar faced downward pressure against the Loonie as inverted yields point toward economic uncertainty. The 2s-10s part of the yield curve inverted, and the 5s-10s part of the curve remained inverted, pointing toward signs of a possible recession. However, the inversions are not a guarantee of a recession. Investors will continue to monitor the Russia-Ukraine situation despite little progress being made. Gold prices moved higher due to the possibility of new sanctions on Russia. However, safe-haven demand might decrease if tensions ease between Russia and Ukraine. Oil prices rise 4% as there is talk of European countries imposing new sanctions on Russia’s energy sector. Oil prices also increased due to a pause in talks that Vienna would renew the Iran nuclear deal. Investors await minutes from the latest FMOC meeting, which will be released on Wednesday.

In March, US factory orders declined, according to the Commerce Department. The data indicated the first decline in ten months. In February, new orders for manufactured goods fell by 0.5%, or by $2.7 billion to $542 billion. Economists predicted that orders would slide by 0.6%. Additionally, in February, new orders for durable goods decreased 2.1%, or by $5.8 billion to $271.7 billion. The reading had increased for the past four months before February. For nondefense capital goods, excluding aircraft, orders dropped a revised 0.2% in February. Demands in the factory sector could be waning despite the industry’s positive gains during the pandemic.

Technical Analysis

The USD/CAD snapped a two-day winning streak. Rising oil prices due to talk of new sanctions put downward pressure on the currency pair and underpinned the Loonie. Losses should be limited by the Fed rate hikes and the possibility of easing tensions in Ukraine. The pair is below the critical level of 1.25 and might lower based on robust Canadian macro data and a 50-point rate hike by the BoC. Bullish traders might see this as an opportunity to buy the dip of the currency pair. Resistance is seen near the 200-day moving average near 1.262. Support is seen near the horizontal trend line by the January lows near 1.245. A break below support could indicate further downward pressure. Short-term momentum turns negative as the fast stochastic might have a crossover sell signal.

The medium-term momentum is negative but has positive momentum despite the MACD line generating a crossover sell 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 moving average of the MACD line).