The USD/CAD pair encountered resistance while striving to extend its recovery beyond the critical psychological threshold of 1.3500 during Monday’s European session. The Loonie appears poised to resume its descent, propelled by waning interest in the US Dollar amid prevailing market expectations for a Federal Reserve (Fed) interest rate reduction in the upcoming June policy meeting.
Friday’s release of the United States Nonfarm Payrolls (NFP) report for February revealed a rise in the Unemployment Rate to 3.9%, its highest level in two years, despite still falling within a comfortable range. Monthly wage growth slowed significantly, although robust labor demand saw employers hire 275,000 workers, surpassing expectations of 200,000.
Looking ahead, market focus shifts to the Consumer Price Index (CPI) data for February, slated for publication on Tuesday. This data is expected to offer fresh insights into the outlook for interest rates.
On the Canadian Dollar front, the softer inflation outlook is attributed to slower wage growth, with Annual Average Hourly Earnings expanding at a notably reduced pace of 4.9% in February, down from a 5.3% increase in January. This circumstance may provide room for Bank of Canada (BoC) policymakers to contemplate a pre-emptive interest rate reduction.
The USD/CAD is currently ensconced within a Rising Channel chart pattern on the daily timeframe, signaling an upward bias of moderate strength. Market participants perceive pullbacks as buying opportunities, although near-term demand remains subdued as the Loonie asset trades below the 20-day Exponential Moving Average (EMA) at approximately 1.3510.
The 14-period Relative Strength Index (RSI) oscillates within the 40.00-60.00 range, reflecting market indecisiveness.
A potential upswing may materialize if the pair breaches the January 17 high at 1.3542, with subsequent targets at the February 13 high of 1.3586 and the key resistance level of 1.3600.
Conversely, a downside movement below the February 22 low at 1.3441 could expose the pair to the February 9 low at 1.3413. A breach below the latter might extend the downside momentum towards the January 15 low at 1.3382.
