USD/CAD Analysis: Manages to defend 200-day EMA, around 1.3400 amid bullish USD


  • USD/CAD regains positive traction on Monday amid some follow-through USD buying.
  • Bets for a 25 bps Fed rate hike in June continue to lift the US bond yields and the USD.
  • Bullish Crude Oil prices underpin the Loonie and might keep a lid on any further gains.

The USD/CAD pair attracts some dip-buying on the first day of a new week and for now, seems to have snapped a three-day losing streak to the 1.3400 mark, or its lowest level since May 16 touched on Friday. The US Dollar (USD) gains positive traction for the second successive day amid the uncertainty over the Federal Reserve’s (Fed) next policy move and turns out to be a key factor acting as a tailwind for the major. It is worth recalling that a slew of influential Fed officials last week backed the case for skipping an interest rate hike, though the markets are still pricing in the possibility of another 25 bps lift-off in June. Moreover, investors pushed back expectations for an imminent pause in the Fed’s rate hiking campaign to July and eased off on bets for rate cuts later in the year following the release of the US monthly employment details on Friday.

In fact, the headline NFP print showed that the US economy added 339K jobs in May, well above the 294K in the previous month and smashing consensus estimates for a reading of 190K. Additional details, however, revealed that the Unemployment Rate rose to 3.7% as compared to an expected uptick to 3.5% from 3.4% in April. Furthermore, Average Hourly Earnings edged lower to 4.3% from 4.4% and pointed to signs of moderating wage growth. Nevertheless, the data was strong enough to support prospects for further policy tightening by the Fed, which continues to push the US Treasury bond yields higher and is underpinning the Greenback. That said, the prevalent risk-on environment – as depicted by a generally positive tone around the equity markets – keeps a lid on any further gains for the safe-haven buck and the USD/CAD pair.

The market sentiment remains well supported by the passage of legislation to lift the government’s $31.4 trillion debt ceiling to avert an unprecedented American default. Adding to this, a private-sector survey showed on Monday that China’s services activity picked up in May and boosts investors’ confidence. This, along with an OPEC+ agreement to extend the at least 3.66 million bpd of cuts till end-2024 from end-2023, leads to a bullish gap opening in Crude Oil prices. Adding to this, Saudi energy pledged to cut its production by about 1 million bpd in July to 9 million bpd and boosts the black liquid, which underpins the commodity-linked Loonie and contributes to capping the USD/CAD pair. Hence, it will be prudent to wait for strong follow-through buying before placing fresh bullish bets as traders now look to the US ISM Services PMI for a fresh impetus.

Technical Outlook

From a technical perspective, spot prices manage to find decent support near the 200-day Exponential Moving Average (EMA), around the 1.3400 mark, which should now act as a pivotal point for the USD/CAD pair. A convincing break below will expose the next relevant support near the 1.3365-1.3360 intermediate support before spot prices eventually drop to the 1.3315-1.3300 horizontal support. Some follow-through selling will be seen as a fresh trigger for bearish traders and pave the way for a further near-term depreciating move.

On the flip side, a sustained strength beyond the 1.3450 region could trigger an intraday short-covering move towards the 1.3500 psychological mark. The momentum could get extended further towards the 1.3555-1.3560 region, above which the USD/CAD pair could make a fresh attempt to conquer the 1.3600 round-figure mark. Any subsequent strength, however, might continue to confront stiff resistance and remain capped near the 1.3655-1.3660 supply zone.