The Canadian dollar paired with the US currency continues to strengthen, resuming the downward trend. The loonie demonstrated contradictory price movements this week, but eventually returned to the downward scenario. In general, during March, the USD/CAD pair decreased by 400 points, reflecting the "stress resistance" of the loonie in difficult and unstable geopolitical conditions. The loonie enjoys support from the Bank of Canada, the oil market and key macroeconomic indicators. And although some experts admit that the Canadian central bank may disappoint investors at its next meeting (April 13), traders mostly ignore such signals. The USD/CAD pair is still dominated by bearish sentiment.
The main ally of the Canadian dollar is the Bank of Canada. At their last meeting, which took place on March 2, the members of the central bank again raised the interest rate by 25 basis points and declared further tightening of monetary policy.
After the March meeting, key data on the labor market and inflation were published. Both releases turned out to be quite strong, allowing the loonie to show its character again – not only paired with the greenback, but also in the main cross-pairs. In particular, with regard to inflation, the overall consumer price index jumped in February to 1.0% on a monthly basis. This is the strongest growth rate since 2013. In annual terms, the CPI rose to 5.7% - this is the highest value of the indicator since 1991. It is also worth noting that the overall inflation index exceeds the five percent mark for the second month in a row, reflecting the strongest price pressure. Core inflation similarly demonstrates positive dynamics: the core consumer price index jumped to 4.8% year-on-year, updating the annual high. The unemployment rate also showed positive dynamics, falling to 5.5% from the previous value of 6.5%. This is the lowest value since February 2020. The number of people employed in February in the country increased by 336,000, with a growth forecast of 120,000. It should also be said that retail sales in Canada jumped immediately by 3.2% (on a monthly basis), while experts predicted growth of 2.4%. The indicator jumped up, given the fact that in the previous month it came out at around 1.8%.
In other words, key macroeconomic indicators have reinforced hawkish expectations – according to most analysts, the Bank of Canada will raise the rate again by 25 basis points on April 13. Moreover, there are rumors in the market that the Canadian central bank may demonstrate a more aggressive pace of tightening monetary policy. We are talking about a 50-point increase following the results of the April meeting. This message is quite controversial, given the unstable geopolitical situation and the volatility of the oil market. Subsequently, the loonie may suffer from too high market expectations, but at the moment, hawkish rumors are playing in favor of USD/CAD bears. We can say that the Canadian dollar is in high demand in compliance with the trading principle "buy on rumors, sell on facts".
The downward dynamics of the pair is also due to the behavior of the greenback. The US dollar index is gradually but steadily declining, reflecting the decline in anti-risk sentiment in the foreign exchange market. The results of yesterday's talks between Russia and Ukraine suggested that the parties may conclude a compromise agreement in the foreseeable future. Against this background, the greenback sank throughout the market, including in a pair with the Canadian dollar.
But oil quotes, after yesterday's decline, resumed growth today. It is known that OPEC+ countries will hold another meeting tomorrow to discuss plans for oil production in May. Previous comments by representatives of the oil cartel suggest that OPEC+ is likely to increase production in accordance with the previously agreed schedule. However, the intrigue regarding this issue persists, and this fact has a corresponding impact on the dynamics of oil quotes.
From a technical point of view, the USD/CAD pair on all higher timeframes (from H4 and above) is either on the lower line of the Bollinger Bands indicator, or between the middle and lower lines, which indicates the priority of the downward direction. On the H4, W1 and MN timeframes, the Ichimoku indicator has formed a bearish Parade of Lines signal. This signal similarly indicates bearish sentiment. The main support level is at 1.2420 (the lower line of the Bollinger Bands on the daily chart). It is important for bears to overcome this target in order to identify further downward prospects in the context of the 23rd figure. It is likely that in the 1.2400 target area, the downward momentum will temporarily fade, allowing bulls to organize a corrective counterattack.
