USD/CAD Price Prediction – USD/CAD tumbles following BoC rate

Key Insights

• Gold prices rose as the dollar fell. 
• Treasury yields dipped following weak jobs data. 
• Oil prices fell after OPEC+ agreed to hike production. 

USD/CAD declines as investors digest the BoC rate hike and the dollar’s weakness. Gold prices rallied as yields declined and the dollar softened. Economic data indicated a bleak economic outlook, causing investors to rotate into the safe-haven asset.

The Fed cannot push the unemployment rate too high when fighting inflation because it will hurt the labor market.

Benchmark yields fell ahead of the unemployment report and nonfarm payroll data released tomorrow. The ten-year yield dropped by 2.7 basis points to 2.904%. Oil prices fell due to the OPEC+ decision to increase oil output, reversing rising prices caused by tight supply.

Private payrolls, which were released today, rose by 128.000 in May. This reading shows the slowest growth during the pandemic recovery. The Dow Jones estimate for private payrolls was 299,000, which was significantly higher than the actual number.

Small businesses performed the worst this month, lowering payrolls by 91,000. The number indicates slower economic growth.

US jobless claims declined by 11,000 to 200,000 from the previous week. The reading indicates that the labor market remains tight as labor supply has matched labor demand.

However, demand for labor, which is job openings, may ease as the Fed continues to aggressively tighten interest rates. Tomorrow’s key readings including non-farm payrolls and the unemployment report, which is estimated to come in at 3.5%, will determine the direction of the economy. 

Technical Analysis

The USD/CAD falls below the 10-day moving average of 1.27 following the BoC’s rate hike on Wednesday. The currency pair faced downward pressure amid a weaker dollar.

If the pair maintains a price below 1.26, it could be headed toward a support level of 12.57 and then 1.252. The dollar will need to strengthen to reverse the negative pressure.

Support is seen near the April 20th low near 1.246. Resistance is seen near the 200-day moving average of 1.265. Short-term momentum turned negative as the fast stochastic had 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.