USD/CAD Forecast: Safe-Haven Demand for the Dollar Fades

• The announcement of a finalized debt ceiling deal reduced demand for the dollar.

• The Canadian dollar recorded a weekly decline due to strengthening US bond yields.

• Preliminary data indicated a 1.6% increase in Canada’s wholesale trade in April compared to March.

Today’s USD/CAD forecast is bearish. The announcement of a finalized debt ceiling deal reduced safe-haven demand for the greenback on Monday. On Friday, the Canadian dollar slightly increased against the US dollar. However, it recorded a weekly decline due to strengthening US bond yields, which supported the greenback. 

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Notably, Karl Schamotta, the chief market strategist at Corpay, stated that the Canadian dollar could still fall as US rate expectations return to pre-banking panic levels.

Meanwhile, Federal Reserve policymakers received unexpectedly robust US economic data, reinforcing the argument for additional tightening of monetary policy to address persistently high inflation.

However, if some of the uncertainties surrounding financial markets are resolved, investors might become more optimistic about Canada’s currency. Schamotta suggested that if Congress successfully raises the US debt ceiling before the June 1 deadline, it could trigger a global relief rally. 

Elsewhere, oil, one of Canada’s major exports, rose by 0.9% to $72.46 per barrel on Friday as US officials appeared close to reaching a debt ceiling agreement.

Preliminary data indicated a 1.6% increase in Canada’s wholesale trade in April compared to March. Canada’s finance ministry also reported that the budget deficit contracted to C$41.31 billion ($30.89 billion) in the fiscal year 2022/23. This was due to a post-pandemic economic recovery, which boosted tax revenue while spending on support measures declined.

USD/CAD key events today

Investors are not expecting economic releases today. A public holiday in the US could see the pair consolidate.

USD/CAD technical forecast: 30-SMA support level in focus.

USD/CAD has pulled back sharply from the 1.3650 resistance level. The price is approaching the 30-SMA support, where it will likely pause to allow the bullish trend to continue. Despite the recent pullback, the bullish bias is strong. This is because the price trades above the SMA while the RSI is still above 50, supporting bullish momentum.

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If bulls return to the 30-SMA support, the price will likely retest the 1.3650 resistance level. A break above 1.3650 would strengthen the bullish bias by making a higher high.

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