USD/CAD Price Prediction – USD/CAD holds above the 1.28 level amid a firmer dollar

Key Insights

• Gold prices fell as the dollar strengthened. 
• Treasury yields remained little changed.  
• Oil prices rose on tight supply. 

USD/CAD eased from the multi-day peak but hovers above the 1.28 level as the dollar makes gains amid more aggressive Fed policy. Worsening global market sentiment has signaled investors to rotate into the US dollar, underpinning some upward momentum for the currency pair.

Gold fell on Wednesday as the dollar rallied after its two-day losing streak. Benchmark yields traded flat as investors digested the latest Fed statement. The ten-year yield dropped by only 1 basis point today.

Oil prices rise as little production growth and storage levels that are below the five-year average signal that there will be tight supply. Rising oil prices have contributed to increased inflationary pressures. 

The Fed released its May minutes today and will likely make more 50-basis point rate hikes going forward. Inflation has been skewed upward, which means that rate hikes will be skewed upward as well. A more hawkish Fed has led to greater concerns over slower economic growth.

Investors must weigh how much risk there is to a potential recession if the Fed keeps on aggressively tightening rates to control inflation. Investors look for clues about the possibility of a 75-basis point rate hike.

Economic data including quarter one GDP, which will be released later this week, will indicate the US economic condition and outlook.

Technical Analysis

The USD/CAD tested the 10-day moving average before retreating to the lower 1.28 level. The currency pair has positive momentum as the dollar has become a safe haven during global risk-off sentiment. A more aggressive Fed also backs up a firmer dollar. However, rising crude oil prices might underpin the Loonie.

Support is seen near the 50-day moving average of 1.2698. 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 negative 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.