- USD/CAD drifts lower at the start of a new week amid the emergence of some USD selling.
- Deteriorating consumer sentiment reaffirms Fed rate cut bets and weighs on the Greenback.
- Concerns about Trump’s tariffs and softer Oil prices undermine the Loonie and limit losses.
The USD/CAD pair kicks off the new week on a softer note and for now, seems to have snapped a six-day winning streak to its highest level since February 4, around the 1.4470 area touched on Friday. Despite Friday’s in-line US inflation data, traders are pricing in the possibility that the Federal Reserve (Fed) will cut interest rates by a quarter of a percentage point twice by the end of this year amid signs of deteriorating consumer sentiment. This, in turn, fails to assist the US Dollar (USD) to capitalize on a three-day-old recovery from over a two-month low touched last week and exerts some pressure on the currency pair.
The US Bureau of Economic Analysis reported that the Personal Consumption Expenditures (PCE) Price Index increased 0.3% in January and rose 2.5% over the past twelve months, down slightly from 2.6% in December. Furthermore, the core PCE Price Index, which excludes volatile food and energy prices, climbed 0.3% last month and 2.6% on a yearly basis, marking a notable deceleration from 2.9% in December. The report further revealed that US consumer spending fell for the first time since March 2023, by 0.2%, also marking the biggest decline in nearly four years and fueling concerns about the US growth outlook.
This comes on top of worries that US President Donald Trump’s trade tariffs would undermine consumer spending and lift market bets for further policy easing by the Fed. According to the CME Group’s FedWatch Tool, the Fed is expected to resume cutting interest rates at the June policy meeting and lower borrowing costs again in September. This, in turn, keeps the USD bulls on the defensive and weighs on the USD/CAD pair. That said, Trump’s tariff plans, along with a modest intraday pullback in Crude Oil prices, undermine the commodity-linked Loonie, which, in turn, helps limit the downside for spot prices.
Trump confirmed that he will impose tariffs on Canada and Mexico starting Tuesday and announced plans to double the 10% universal tariff on imports from China. This raises the risk of a global trade war, which could dent fuel demand and weigh on Crude Oil prices. This suggests that the path of least resistance for the USD/CAD pair is to the upside and any corrective slide might still be seen as a buying opportunity. Traders now look forward to the US ISM Manufacturing PMI, which might influence the USD. Apart from this, Oil price dynamics should provide some impetus later during the North American session.
Technical Outlook
From a technical perspective, the recent move-up witnessed over the past week or so stalls near the 50% Fibonacci retracement level of the pullback from a multi-year peak touched in early February. The said barrier is pegged near the 1.4470 area, which if cleared decisively would be seen as a fresh trigger for bullish traders and pave the way for further gains. Given that oscillators on the daily chart are holding in positive territory, the USD/CAD pair seems poised to surpass the 1.4500 psychological mark and climb further towards the 1.4545-1.4550 region, representing the 61.8% Fibo. level.
On the flip side, Friday’s swing low, around the 1.4400 mark, which coincides with the 38.2% Fibo. level now seems to protect the immediate downside. Any further slide could be seen as a buying opportunity near the 1.4365-1.4370 region, which should help limit the downside for the USD/CAD pair near the 1.4315-1.4310 area, or the 23.6% Fibo. level. A convincing break below the latter, however, could shift the bias in favor of bearish traders and drag spot prices to the 1.4240 intermediate support en route to the 1.4200 mark and the year-to-date-low, around 1.4160-1.4150 region, touched in February. The latter near the 50-day Simple Moving Average (SMA) and should act as a strong near-term base for the pair.
