USD/CAD Outlook: Bulls might wait for acceptance above 1.3600; US macro data in focus

• USD/CAD regains positive traction on Wednesday and is supported by a combination of factors.
• A downtick in Oil prices undermines the Loonie and acts as a tailwind amid some USD dip-buying.
• Reduced June Fed rate cut bets, along with a softer risk tone, benefits the safe-haven Greenback.

The USD/CAD pair attracts some dip-buying on Wednesday, albeit lacks bullish conviction and remains below the 1.3600 mark through the early European session. The US Dollar (USD) stalls the previous day's retracement slide from its highest level since February 14 amid the uncertainty over the Federal Reserve’s (Fed) plans to cut interest rates. Apart from this, a modest pullback in Crude Oil prices, from over a five-month top set earlier today, undermines the commodity-linked Loonie and further seems to act as a tailwind for the currency pair.

The Job Openings and Labor Turnover Survey (JOLTS) published by the Labor Department showed that employers posted 8.76 million job vacancies in February, up slightly from 8.75 million in the previous month. Separately, the Commerce Department reported that orders for manufactured goods rebounded after two straight monthly declines and rose more than expected, by 1.4% in February. This comes on top of the US ISM Manufacturing PMI released earlier this week, which moved into expansion territory during March for the first time since September 2022 and pointed to a still-resilient economy. Adding to this, hawkish remarks by Fed officials raised doubts about the possibility of three interest rate cuts by the end of this year.

In fact, Fed Chairman Jerome Powell said last Friday that there was no need to be in a hurry to cut interest rates. Furthermore, San Francisco Fed President Mary Daly noted on Tuesday that inflation is gradually decreasing, though feels no urgency to lower interest rates and that three rate cuts this year is a projection, not a promise. Adding to this, Cleveland Fed President Loretta Mester said that substantial progress has been made on inflation, though wants to see more evidence that it is headed towards the 2% target before cutting interest rates. The markets were quick to price in in an even chance that the Fed will start cutting rates in June and a total of 65 basis points (bps) rate cut for 2024, lower than 75 bps projected by the central bank.

The shift in expectations lifts the yield on benchmark 10-year US government bond to a four-month high, which, along with a softer risk tone, acts as a tailwind for the safe-haven Greenback and the USD/CAD pair. Meanwhile, investors remain about tight global supplies in the wake of Ukrainian attacks on Russian refineries and the risk of a widening of the Israel-Hamas conflict to more directly include Iran. This continues to lend some support to Crude Oil prices and might keep a lid on any meaningful appreciating move for the major. Traders now look to the US economic docket – featuring the release of the ADP report on private-sector employment and ISM Services PMI – for some impetus later during the North American session.

Investors will further take cues from speeches by influential FOMC members, including the Fed Chair Jerome Powell, which, along with the US bond yields and the broader risk sentiment, should drive the USD demand. Apart from this, Oil price dynamics should contribute to producing short-term trading opportunities around the USD/CAD pair. Nevertheless, the aforementioned mixed fundamental backdrop makes it prudent to wait for strong follow-through buying before placing fresh bullish bets and positioning for further gains.

Technical Outlook

From a technical perspective, any subsequent move-up might continue to confront stiff resistance near the 1.3600-1.3610 supply zone. A sustained move beyond, however, could trigger a short-covering rally and allow the USD/CAD pair to challenge the top end of a nearly three-month-old ascending trend channel, currently pegged near the 1.3670-1.3675 region. Some follow-through buying will mark a fresh bullish breakout and lift spot prices beyond the 1.3700 mark toward testing the next relevant hurdle near the 1.3740-1.3750 region.

On the flip side, the 1.3535-1.3530 horizontal zone is likely to protect the immediate downside ahead of the 1.3500 psychological mark. The latter coincides with the very important 200-day Simple Moving Average (SMA) and is followed by the ascending channel support, near the 1.3480-1.3475 region, which if broken decisively will set the stage for deeper losses. The USD/CAD pair might then accelerate the downward trajectory further towards the 1.3420-1.3415 intermediate support en route to the 1.3400 round figure.

USD/CAD daily chart