USD/CAD Outlook: Bulls have the upper hand ahead of Canadian Retail Sales, Fed’s Powell

• USD/CAD scales higher for the second straight day and draws support from a combination of factors.
• Sliding Crude Oil prices undermine the Loonie and act as a tailwind amid sustained USD buying.
• Traders look to Canadian Retail Sales and Fed Chair Powell’s speech for some meaningful impetus.

The USD/CAD pair builds on the previous day's goodish rebound from the 1.3455 region, or a nearly two-week low and gains positive traction for the second successive day on Friday. The momentum assists spot prices to reverse the post-FOMC losses and is sponsored by a combination of factors. Crude Oil prices prolong this week's corrective decline from the highest level since November 2023 amid easing concerns about supply disruptions in the Middle East. This is seen undermining the commodity-linked Loonie, which, along with some follow-through US Dollar (USD) buying, acts as a tailwind for the currency pair.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, jumps to a three-week high in the wake of the optimistic outlook for the US economy. The Federal Reserve (Fed) upgraded its economic growth projection and now sees real GDP to hit 2.1% by the end of this year as compared to the previous estimate of 1.4% in December. Moreover, policymakers raised the forecast for core inflation to 2.6% from 2.4% and now see the unemployment rate at 4% for 2024, slightly lower than the 4.1% previously projected. This lends support to the Greenback and provides an additional boost to the USD/CAD pair.

The Fed, meanwhile, projected a less restrictive policy stance and three interest rate cuts for 2024. The markets were quick to react and are now pricing in a greater chance, around 75% that the US central bank will begin cutting rates at the June policy meeting. This leads to a fresh leg down in the US Treasury bond yields, which, along with the underlying bullish tone across the global equity markets, might keep a lid on a further appreciating move for the safe-haven Greenback. Moreover, worries about tightening global supply should act as a tailwind for Crude Oil prices and further contribute to capping the USD/CAD pair.

Investors now look forward to the release of Canadian monthly Retail Sales figures later during the early North American session. The focus, however, will remain glued to Fed Chair Jerome Powell's scheduled speech, which, along with the US bond yields, will drive the USD demand. Apart from this, Oil price dynamics should contribute to producing short-term trading opportunities around the USD/CAD pair. Nevertheless, spot prices seem poised to register modest gains for the second straight week.

Technical Outlook

From a technical perspective, the overnight bounce reaffirmed a support marked by the lower end of an ascending trend channel extending from the first half of January. Moreover, the recent repeated failures to find acceptance below the 200-day Simple Moving Average (SMA) and the subsequent move up favour bullish traders. Adding to this, oscillators on the daily chart have just started gaining positive traction and suggest that the path of least resistance for the USD/CAD pair is to the upside.

Hence, some follow-through strength beyond the 1.3600 mark, towards testing the trend-channel hurdle near the 1.3645 region, looks like a distinct possibility. A sustained strength beyond will mark a fresh breakout and pave the way for a further near-term appreciating move. The USD/CAD pair aim to reclaim the 1.3700 round figure for the first time since November 2023.

On the flip side, weakness back below the 1.3500 psychological mark might expose the trend-channel support, currently near the 1.3455-1.3450 region. A convincing break below will shift the near-term bias in favour of bearish traders and make the USD/CAD pair vulnerable. The downward trajectory could then extend towards the 1.3420-1.3415 support en route to the 1.3400 round figure.