USD/CAD Price Prediction – USD/CAD falls as Loonie weakens on heightened risk aversion 

Key Insights

• Gold prices move higher on the softer dollar.
• Treasury yields fell on risk-off sentiment.
• Oil prices rose on tight supply. 

USD/CAD climbs higher despite weaker-than-expected US economic data and heightened inflationary concerns. Gold prices rose on Tuesday as the US dollar continued to decline from its one-month peaks. Aggressive Fed tightening has already been priced into the market, causing the dollar to continue to slide. 

Benchmark yields dipped today as the stock sell-off from last week resumed. The ten-year yield fell by 12 basis points today. Oil prices marched higher on concerns over tight supply as the European Union is getting closer to an agreement on banning Russian oil imports.

An embargo will likely offset strengthening demand due to the easing of restrictions in China and increased US oil output.

The US Flash Manufacturing PMI for May registered at 57.5, while the Dow Jones estimate was at 57.4. The US Flash Services PMI came in at 53.5, 1.5 lower than the forecast of 55. These key economic data points signal that mounting inflation weighed on supply, and declining demand for goods and services. 

Fed Chair Powell is due to speak today and will likely state the Fed’s aim to raise rates to rein in inflation despite the clear weakness in the economy.

Technical Analysis

The USD/CAD tested the 10-day moving average of 1.287 and may look to test the 1.289 area. The currency pair has positive momentum as the dollar has become a safe haven during global risk-off sentiment. A break above the 1.29 level and consolidation there would signal a bullish outlook for the dollar.

Support is seen near the 50-day moving average of 1.269. Resistance is seen near the 10-day moving average of 1.287. dropped to an over two-week lower but recovered to just below the 1.28 level amid heavy selling of the dollar. Short-term momentum turned positive as the fast stochastic had a crossover buy 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.