USD/CAD Tests Resistance as Sliding Crude Oil Prices Underpin the Dollar

Insights

• The dollar became firmer against the Loonie.
• Benchmark yields climbed higher ahead of key US inflation data.
• Oil prices declined to their lowest level since March 17.

The dollar extended gains against the Loonie as hawkish Fed commentary and FOMC minutes generated a rally in yields. Benchmark yields continued their climb as the 10-year yield rose to 2.76% the highest level in 3-years. Gold and silver prices moved higher due to lingering fear of the Russia-Ukraine war. 

The dollar moved higher due to falling oil prices that undermined the Loonie. Oil prices tumbled to their lowest level since March 17th, putting downward pressure on the commodity-linked Loonie. Shutdowns in China due to COVID-19 caused the decline. 

The week begins subdued on the data front. The focus remains on the March CPI, which will be released tomorrow. Economists expect the CPi to have increased to 8.4% from the previous month’s 7.9%. 

Core PCI is expected to rise to above 6.5%. Some analysts expect the CPI to peak shortly since the Fed plans to enact hawkish policy to tighten inflation.

Technical Analysis

The USD/CAD tests the 200-day moving as the currency pair gains positive traction. USD/CAD formed a bottom near 1.240, paving the way to extend gains. Momentum could push the currency pair to the 1.27 region. Resistance is seen near the 50-day moving average of 1.266. Support is seen near the 10-day moving average of 1.252. 

Short-term momentum is positive as the fast stochastic had a crossover buy signal.

The medium-term momentum turned 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).