USD/CAD Outlook: Aims to surpass 1.3700 as bulls seem to have the upper hand

The USD/CAD pair attracts some dip-buying near the 1.3570-1.3565 region during the Asian session on Tuesday and stalls a two-day-old downfall from a nearly one-month high touched last week. Concerns that slowing global economic growth will dent fuel demand prompt fresh selling around Crude Oil prices, which, in turn, is seen undermining the commodity-linked Loonie. The US Dollar (USD), on the other hand, stands tall near its highest level since mid-March and turns out to be another factor lending some support to the major.

Markets started pricing in a greater chance of another 25-basis-points (bps) lift-off in June following more hawkish remarks by several Fed officials, backing the case for higher interest rates for longer. Adding to this, data released Friday showed that the Personal Consumption Expenditures (PCE) Price Index – the Fed’s preferred inflation gauge – unexpectedly rose in April, signaling that inflation remained sticky. This remains supportive of elevated US Treasury bond yields and continues to act as a tailwind for the Greenback.

That said, a positive risk tone – amid optimism over raising the US debt ceiling – is holding back traders from placing bullish bets around the safe-haven buck and could cap the upside for the USD/CAD pair. It is worth recalling that lawmakers flagged a tentative deal to raise the US government's $31.4 trillion debt ceiling, which helps ease fears about an unprecedented US default and boosts investors' confidence. The agreement, however, could face a rocky path through the Republican-controlled House of Representatives and Democratic-controlled Senate.

Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the USD/CAD pair is to the upside and supports prospects for an extension of the uptrend witnessed over the past three weeks. Traders look to the release of the Conference Board's US Consumer Confidence Index, due the early North American session. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand. Apart from this, Oil price dynamics should provide some impetus to the major.

Technical Outlook

From a technical perspective, any subsequent move up is likely to confront some resistance near the 1.3640 horizontal zone ahead of the April monthly high, around the 1.3665-1.3670 region. Some follow-through buying will be seen as a fresh trigger for bullish traders and allow the USD/CAD pair to reclaim the 1.3700 mark. The momentum could get extended further towards the next relevant hurdle near the 1.3730-1.3735 area en route to the 1.3760-1.3765 region and the 1.3800 mark.

On the flip side, the Asian session low, around the 1.3570-1.3565 region, seems to protect the immediate downside. This is followed by the 100-day Simple Moving Average (SMA) support, pegged near the 1.3515 region, and the 1.3500 psychological mark. A convincing break below the latter might shift the near-term bias in favour of bearish traders and drag the USD/CAD pair towards the 1.3440 horizontal support en route to the 1.3400 round figure. The latter should act as a pivotal point, which if broken will set the stage for deeper losses.