USD/CAD Forecast: could rise to 1.2430-1.2450 ahead of BOC Rate Statement

USD/CAD extends its bullish momentum following a bullish channel break out witnessed on Friday last week. The pair prolongs its winning streak mainly largely on the back of broad based US dollar strength backed by upbeat US CPI figures released on Friday while Yellen’s comments hinting of a rate sometime this year also added to the upside in the greenback. The pair has managed to hold gains above 1.23 handle and is expected to test 100-DMA located at 1.2414, beyond which doors would open for 1.2430-1.2450 targets. It is expected that USD/CAD would extend its stretch of gains and test the lasts ahead of Bank of Canada’s (BOC) Rate statement due tomorrow.

On the macro economic front, the North American session today will start off with the much awaited US durable goods and core durable goods orders numbers. The durable goods orders data will set the tone for the upcoming US Q1 GDP figures to be released later this week. Durable goods orders are likely to fall 0.5% in April after the 4% jump a month before, while the figure excluding transport is expected to rise 0.3% from March's 0.2% slide.

Traders will also watch today's Services PMI, consumer confidence and new home sales to confirm the latest signs of economic recovery seen in the US and hence to gauge further US dollar strength.

Activity in the services sector is expected to slow down slightly its pace of growth in May as markets predict 57 points, after April's 57.4. While, US consumer confidence is forecast to reveal 95.2 points for May, the same as a month ago. However, the number of new home sales may spike 5% to 505,000 in April, analysts estimate, following the 11.4% slump booked in March.

With the extended rebound expected in the core durable goods segment and higher new home sales figures, it is expected that the US dollar will keep up with its upbeat momentum, taking USD/CAD higher for a test of 100-DMA and beyond.

Also, keeping in mind tomorrow’s BOC rate decision, we expect the upside in the pair to be capped around 1.2430-1.2450 resistance zone as the BOC is widely expected to keeps policy steady, leaving the benchmark rates untouched at 0.75%. The rate decision may support the Canadian dollar which may result in minor correction from 1.2450 levels before the CAD pair resumes its upward trajectory towards the next target placed at 1.2600 levels in the week ahead.

In reference to the latest speech by BOC Governor Poloz delivered last week, he said the BoC anticipates partial growth rebound in Q2 2015, reaching full capacity by the end-2016. However, he warned about the uncertain outlook. The BoC will monitor closely how firms and households respond to recent climb in the loonie and oil.

Moreover, further weakness in crude oil is likely below a break of key $58 level. Oil prices remains pressured as the US dollar continues to rally and stands at fresh monthly highs against its major competitors. Crude oil prices have failed to re-test the highs set earlier in May and are also trading near the $58 per barrel hurdle that represents a key technical point break as it represents 23.6% The Fibonacci retracements of the oil price decline starting back in June last year at $107.56 per barrel and ending at six year low of $42.06 from March 18 this year.

To conclude:

• USD/CAD faces stiff resistance at 100-DMA located at 1.2414 levels.

• The pair is expected to rise to 1.2430-1.2450 zone mainly on broadly stronger USD.

• USD/CAD may extend to 1.2600 later this week above a break of 1.2450 upside barrier.