Oil prices dropped by nearly 1% on Monday amidst discussions of a ceasefire in the Middle East conflict. This development led to reduced concerns among investors regarding a potential escalation in the war and its impact on the oil market. The decline in oil prices typically results in a weakening of the Canadian dollar, as Canada heavily relies on oil exports.
Furthermore, recent data indicated a 1.3% decrease in Canadian wholesale trade in March, highlighting a slowdown in the country’s economy. This has raised expectations for the Bank of Canada to implement rate cuts by June. On the other hand, US data showed a moderate increase in inflation for March, with housing and utilities costs remaining high, indicating ongoing price pressures.
The fluctuating economic data has resulted in differing monetary policy stances between the Bank of Canada and the Federal Reserve, with the Fed leaning towards a more hawkish approach. As a result, the Canadian dollar has lost value against the US dollar since the beginning of the year.
Looking ahead, the USD/CAD pair may see consolidation today as no significant economic releases are expected from either Canada or the US. From a technical perspective, the USD/CAD price has been on a downward trend, trading below the 30-day Simple Moving Average (SMA) with the Relative Strength Index (RSI) in bearish territory. However, bears are facing resistance near the SMA, indicating weakening momentum. The 0.618 Fibonacci level could potentially act as support as the price approaches this level.
Additionally, a bullish divergence in the RSI suggests a potential break above the SMA towards the 1.3840 resistance level. Traders looking to engage in forex trading may consider investing with eToro, but should be aware that trading CFDs carries a high risk of financial loss.