USD/CAD Rallies Following Hawkish Fed Remarks that Boosted Yields

Key Insights

• Gold and silver prices tumbled as bond yields moved higher.
• The 5-30s yield curve inverted following hawkish Fed remarks.
• Oil prices fell amid concerns over global supply and China shutdowns.

USD/CAD hits multi-week high as declining oil prices and rising benchmark yields undermine the Loonie. The 5s-30s yield curve inverted following Fed Chair Powell’s statement yesterday. This situation indicates a weakening economy and a potential recession as a result of mounting inflation. 

Gold prices moved lower as aggressive Fed tightening boosted yields despite rising inflation concerns. Oil prices take a hit as investors show increasing concern over China’s lockdowns since China is the world’s largest oil importer.

Lingering supply issues in Libya and a potential EU embargo on Russian oil could further tighten oil supply and further losses. On Thursday, Federal Reserve Chair Jerome Powell stated that a 50-basis point rate hike was likely in May.

Additionally, the US Flash PMI, which tracks the manufacturing and service sectors, fell to a reading of 55.1 from 55.7 last month. Although a reading above 50 indicates growth in the sector, the reading shows a decline in sentiment.

The survey also indicated that input and output prices were at a record high, which suggests that inflation could remain at elevated levels. This scenario signals that there is a need for aggressive Fed rate tightening in the coming months.

Technical Analysis

The USD/CAD makes extensive gains following Fed Chair Powell’s remarks about the aggressive tightening of monetary policy. These remarks boosted yields, which underpinned the greenback. The currency pair holds steady just below the 1.27 mark.

Hawkish Fed policy will continue to have the currency pair face upward momentum. Resistance is seen near the March 17th high near 1.2706. Support is seen near the 10-day moving average of 1.2602. Short-term momentum turned positive as the fast stochastic had a crossover buy signal.

Medium-term momentum is positive 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).