The USDCAD remained resilient holding above 1.2800 support as the dollar got a boost from Fed’s hawkish sentiment. Fed Chairman Powell indicated he is determined to bring down inflation in a bid to achieve price stability in the near term. The Fed is expecting to hike rates by 50bps in the next two policy meetings.
Investors are focusing on the US housing market data-Building permits and housing stats, although the impact is significantly low.
Crude oil inventories will be critical as investors gauge demand in the near term. USWTI was down -0.10% during the European session as the 115.55 area holds. The G-7 ministers will be meeting later today to discuss energy concerns as EU leaders struggle to replace the Russian oil supplies.
There will be a release of Canadian inflation data later in the New York session. The Canadian Core CPI (MoM) is expected to drop from 1% to 0.4% in April and Core CPI YoY by 0.1% to 5.4%.
The USDCAD traded lower at the open of the week as commodity demand lifted as investors drew optimism from China easing lockdown measures. The weekly chart shows a rising channel indicating a bearish outlook for the pair in the near term. Bulls lost steam below the 1.3000 area and bears have a possibility to target the 1.2000, a 7-year low.
The Stochastic RSI is trading above the 80.00 reading showing an extreme overbought condition and the pair may have sharp retracements if the 1.3000 resistance holds.
However, a break above the 1.3000 which coincides with the 200-day moving average may attract bullish participation although upside gains are capped by the 1.3400 resistance.
The ActivTrader Sentiment tool shows that retail traders have an increasing bullish sentiment over the USDCAD. A 63% of traders are long on the pair as hawkish sentiment over the Fed tightening peaks. However, the pair may trade lower as supply shocks continue to linger amidst the Ukraine/ Russia war cloud. The possibility of China easing lockdown measures may see commodity demand rise.
The USDCAD Bollinger Band (20) has a bearish breakout below the and the pair is trading towards a critical pivot at 1.27000. A break below that area may renew selling pressure on the pair towards the 1.24500 support, a January 2022 low.
The MACD indicator reading is showing diminishing selling volume while the moving averages are in negative territory. This indicates a possibility of a further drop if the indicator remains in the negative territory in the near- term.
However, upside gains are capped by the 1.2900 psychological figure, coinciding with the Bollinger bands baseline (yellow).
The commodity prices outlook will remain key to the strength of the Canadian dollar in the near term.