- USD/CAD hits a fresh multi-year top and seems poised to register gains for the third straight week.
- BoC’s jumbo rate cut and dovish outlook undermine the Loonie despite an uptick in Oil prices.
- Bets for a less aggressive Fed easing and elevated US bond yields support the USD and the pair.
The USD/CAD pair builds on Thursday's breakout momentum above the 1.4200 mark and touches a fresh high since April 2020 on the last trading day of the week. The Canadian Dollar (CAD) continues to be weighed down by the Bank of Canada's (BoC) aggressive policy easing and dovish outlook. In fact, the BoC lowered the key interest rate by 50 basis points for the second straight meeting and noted projected lower growth in the final quarter of this year. The central bank further added that the possibility of new tariffs on Canadian exports to the US has made the economic outlook more unclear. Apart from this, the underlying bullish sentiment surrounding the US Dollar (USD) turns out to be another factor that acts as a tailwind for the currency pair.
The US Bureau of Labor Statistics reported on Thursday that the headline Producer Price Index (PPI) rose 0.4% in November and the yearly rate accelerated from 2.6% in October to 3%. Moreover, the annual core PPI stood at 3.4% compared to the same time period last year, beating estimates. This, along with the US Consumer Price Index (CPI) released on Wednesday, suggests that the progress in lowering inflation to the Federal Reserve's (Fed) 2% target has stalled. Apart from this, expectations that the Fed will adopt a more cautious stance on cutting rates, in the wake of hopes that US President Donald Trump's policies will boost inflation, remain supportive of elevated US Treasury bond yields and push the USD to a fresh monthly top on Thursday.
The USD bulls, however, seem reluctant to place aggressive bets and opt to wait on the sidelines ahead of the key central bank event risk – the outcome of the highly-anticipated FOMC policy meeting starting next Tuesday. Investors will look for cues about the Fed's rate cut path, which, in turn, should influence the near-term USD price dynamics and provide a fresh directional impetus to the USD/CAD pair. In the meantime, a modest uptick in Crude Oil prices could offer some support to the CAD and cap any further appreciating move for the currency pair. Nevertheless, spot prices remain on track to register gains for the third straight week and seem poised to prolong a near three-month-old uptrend amid a supportive fundamental backdrop.
Technical Outlook
From a technical perspective, the overnight breakout and close above the 1.4200 mark could be seen as a fresh trigger for bullish traders. That said, the Relative Strength Index (RSI) on the daily chart has moved on the verge of breaking into the overbought zone, making it prudent to wait for some near-term consolidation or a modest pullback before positioning for any further gains. Any meaningful corrective slide, however, might now find decent support near the 1.4155 area ahead of the 1.4120-1.4115 zone and the weekly low, around the 1.4095-1.4090 region. The latter should act as a strong near-term base for the USD/CAD pair, which if broken might prompt some long-unwinding trade and pave the way for deeper losses.
Meanwhile, the constructive setup supports prospects for a move towards challenging the April 2020 swing high, around the 1.4300 neighborhood. The subsequent move up has the potential to lift the USD/CAD pair towards the next relevant hurdle near the 1.4360-1.4365 region, above which bulls might aim to reclaim the 1.4400 round figure for the first time since March 2020.
USD/CAD 4-hour chart
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