USD/CAD Forecast: Corrective fall might have run its course, bulls look to seize back control

• USD/CAD finds some support ahead of the mid-1.3600s amid a modest USD strength.
• Bets for a 25 bps Fed rate hike lift the US bond yields and lend support to the buck.
• Rebounding Oil prices could underpin the Loonie and act as a headwind for the pair.
• Investors now look to the important US macro data for some meaningful impetus.

The USD/CAD pair attracts some buyers during the Asian session on Wednesday and for now, seems to have stalled its recent pullback from a multi-month peak touched last week. A further rise in the US Treasury bond yields lends support to the US Dollar, which, in turn, is seen acting as a tailwind for the major. The US consumer inflation figures released on Tuesday revived hopes for at least a smaller 25 bps rate hike by the Federal Reserve at its March policy meeting and continues to push the US bond yields higher. That said, a generally positive risk tone might keep a lid on any meaningful upside for the safe-haven buck. Apart from this, a modest recovery in Crude Oil prices could underpin the commodity-linked Loonie and contribute to capping gains for the major, at least for the time being.

The better-than-expected Chinese Retail Sales and Fixed Asset Investment data released this Wednesday that certain facets of the world's second-largest economy were on a steady path towards recovery. Furthermore, the Organization of Petroleum Exporting Countries (OPEC) raised its forecast for growth in Chinese fuel demand this year, which, in turn, assists Oil prices to recover a part of the overnight slump to a three-month low. That said, worries that a deeper global economic downturn will hurt fuel demand might hold back traders from placing aggressive bullish bets around Oil prices. This, along with the fact that the Bank of Canada (BoC) became the first major central bank to pause its rate-hiking cycle last week, supports prospects for a meaningful near-term appreciating move for the USD/CAD pair.

Market participants now look to the US economic docket, featuring the release of the Producer Price Index (PPI), monthly Retail Sales figures and the Empire State Manufacturing Index later during the early North American session. Apart from this, the US bond yields and the broader market risk sentiment will drive the USD demand. Traders will further take cues from Oil price dynamics to grab short-term opportunities around the USD/CAD pair. The market focus, however, will remain glued to the upcoming FOMC monetary policy meeting on March 21-22, which will help determine the next leg of a directional move for the major. Nevertheless, the aforementioned fundamental backdrop suggests that any meaningful downfall might still be seen as a buying opportunity and is likely to remain limited.

Technical Outlook

From a technical perspective, the USD/CAD pair manages to hold above the 38.2% Fibonacci retracement level of the recent rally from the vicinity of the 200-day Simple Moving Average (SMA). The said support is pegged around the 1.3635 region, below which spot prices could accelerate the fall below the 1.3600 mark, towards testing the 50% Fibo. level, near the 1.3565 zone. Some follow-through selling will expose the 1.3500 confluence, comprising the 100-day SMA, 61.8% FIbo. level and the 50-day SMA. A convincing break below the latter might shift the bias in favour of bearish traders and pave the way for deeper losses.

On the flip side, the 1.3700 round-figure mark, followed by the 1.3720 region (23.6% Fibo.) might now act as immediate hurdles. A sustained strength beyond should allow the USD/CAD pair to aim to reclaim the 1.3800 mark and retest the multi-month peak, around the 1.3860 region. The momentum could get extended further towards the 1.3900 mark en route to the 2022 swing high, around the 1.3975-1.3980 zone, above which spot prices could climb to the 1.4000 psychological mark.