USD/CAD Forecast: Paring Gains in the Wake of Fed, US NFP

• Investors are awaiting Federal Reserve Chair Jerome Powell’s testimony.

• After a two-week dip, the Canadian dollar was up 0.2% last week.

• Economists maintained their predictions for a stronger Canadian dollar during the coming year.

Today’s USD/CAD forecast is bearish. On Monday, the US dollar had a shaky start to the week as investors awaited Federal Reserve Chair Jerome Powell’s testimony and anticipated the release of the February employment data.

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Given that Powell will talk before the official release of the jobs data, Citi strategists expect he will prefer a 25 bps raise while leaving all other possibilities open.

On Friday, improved investor sentiment offset a further widening yield differential between US and Canadian bonds. This allowed the Canadian dollar to recover and move higher against the American currency. After a two-week dip, it was up 0.2% last week.

Investors wagered that the Bank of Canada would halt its interest rate hike campaign during a policy-making meeting on Wednesday. This caused the Canadian 2-year yield to drop 3.4 basis points further below its American equivalent to a spread of approximately 63 basis points, close to its widest since May 2019.

Oil recovered following a report by Reuters that the United Arab Emirates had no plans to pull out of the Organization of the Petroleum Exporting Countries. This gave further support to the Loonie.

The value of building permits in Canada decreased by 4.0% in January, while worker productivity decreased for a third consecutive quarter.

Nevertheless, a Reuters poll showed economists maintained their predictions for a stronger Canadian dollar during the coming year. They anticipate an improved global economy and less central bank uncertainty will boost the currency linked to commodities.

USD/CAD key event today

Investors will pay attention to PMI data from Canada that will show the country’s business activity level.

USD/CAD technical forecast: Bears challenge the bullish trend

The 4-hour chart shows USD/CAD trading slightly below the 30-SMA with the RSI under the 50-level. The price has been in a solid bullish trend, consistently making higher highs and higher lows. 

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The price has also respected the 30-SMA as support, with the RSI staying above the 50-level. However, bulls could not exceed the 1.3650 resistance level, where bears gained momentum. Bears are currently challenging the 30-SMA support and will look to take out the 1.3550 support.

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