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USD/CAD Price Prediction – USD/CAD edges lower as the dollar softens

By:
David Becker
Updated: May 27, 2022, 15:08 UTC

USD/CAD moves slightly lower as US inflationary pressures might be waning.

USD/CAD Price Prediction – USD/CAD edges lower as the dollar softens

In this article:

Key Insights

  • Gold prices rally on a weaker dollar.
  • Treasury yields edged lower as investors digested economic data.
  • Oil prices rose on tight supply. 

USD/CAD continues to ease despite the potential easing of inflationary pressures in the US. Gold prices aim for another weekly gain as the dollar index falls to its multi-month lows. Investors lower expectations about the size of the next Fed rate hike or consider a possible pause in the tightening cycle. 

Benchmark yields edged lower as the PCE showed a potential pullback in the rate of increasing prices. The ten-year yield slid by 1 basis point today. Oil prices continue to face upward traction as investors fear tight supply.

Oil demand has risen in the US due to the arrival of the US driving season. Tight supply also stems from the Russian oil ban, which will continue to buoy prices. 

The Core PCE, which is the Fed’s preferred inflation gauge, rose by 4.9% in April from April 2021. While spending beat investors’ expectations, personal income rose less than expected.

In March, the Core PCE rose by 0.9%, while the index only moved higher by 0.2% in April. The reading indicates that mounting inflation pressures could be slowing. 

The PCE, including food and energy, rose 6.3% in April from the previous year. In March, it increased at 6.6%, showing a slightly slower pace. Consumers rotate into leisure and travel from spending on goods.

A series of Fed hikes are likely to take place in June and July to fight inflation as the current reading indicates elevated price pressures.

Technical Analysis

The USD/CAD falls under the key 1.28 level and is headed for the 50-day moving average of 1.270. However, the currency pair maintains a bullish bias as the Fed is projected to aggressively tighten rates at the next two meetings and inflationary pressures might be slowing down in the US.

A break above the 10-day moving average of 1.281 could buck the downward trend seen in the last three trading sessions. However, a continued decline could signal a bearish outlook. Rising crude oil prices might further underpin the Loonie.

Support is seen near the 50-day moving average of 1.27. Resistance is seen near the 10-day moving average of 1.281. Short-term momentum might turn positive as the fast stochastic might have a crossover sell signal. 

Medium-term momentum turns negative as the MACD line might generate 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 MA of the MACD line). The trajectory of the MACD is in positive territory, which reflects an upward trend in price movement.

About the Author

David Becker focuses his attention on various consulting and portfolio management activities at Fortuity LLC, where he currently provides oversight for a multimillion-dollar portfolio consisting of commodities, debt, equities, real estate, and more.

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