USD/CAD Rebounds as the Dollar Holds Its Ground Following Hot PCE Data

Key Insights

• Gold prices pulled back amid a stronger dollar. 
• Treasury yields were mixed as global uncertain weights on sentiment.
• Oil prices traded lower despite lingering geopolitical tensions and uncertain demand outlook in China. 

USD/CAD pulled back and then recovered after the dollar eased due to profit-taking among investors. The upcoming 50-basis point Fed rate hike underpins a bullish outlook for the dollar. Treasury yields traded relatively flat following inflation data reaffirming hot inflation.

Gold prices rose as the dollar moved lower. Gold prices are on track for a monthly drop. However, global economic weakness and stock volatility underpin gold as a safe-haven asset.

Oil prices rose due to fears of a disruption in Russian oil supply. However, oil market volatility is set to continue amid concerns over demand from China’s ongoing lockdowns.

Core PCE, which is the Fed’s preferred inflation gauge that excludes food and energy, increased by 5.2% in March year-over-year. The employment cost index, which measures the compensation cost for nongovernment workers, rose by 1.4%, and real disposable income declined by 0.4%.

The PCE, which influences food and energy, increased to 6.6% year-over-year, which is the fastest pace since 1982.  

The rise in inflation at a faster pace than the Fed would like reaffirms the Fed’s plan to aggressively tighten rates at its meeting in May. Large rate hikes would rein in spiraling inflation.

Technical Analysis

The USD/CAD slightly extended gains near the 1.285 area as the dollar recovered from its pullback earlier in today’s trading session. The currency pair is headed for its fifth consecutive weekly gain. The pair has a bullish outlook with Fed tightening acting as a tailwind for the dollar. 

Resistance is seen near the March 8th high near 1.290. Support is seen near the 10-day moving average of 1.27. A pullback to the 10-day moving average is an opportunity for investors to buy the dip.

Short-term momentum is turning positive as the fast stochastic might have a crossover buy signal. Medium-term momentum is positive as the MACD line generated a crossover buy 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.