The USD/CAD pair has risen to 1.3640 in Friday’s European session, benefiting from a strong recovery in the US Dollar. This rebound was driven by hawkish guidance on interest rates from Federal Reserve (Fed) officials. The US Dollar Index (DXY) bounced back to 104.75 from a five-week low of 104.00 following cautious sentiments as Fed policymakers expressed concerns about inflation returning to 2%. This led to an emphasis on keeping interest rates unchanged for a longer period, favoring interest-bearish assets like bond yields.
Investors are now awaiting Canada’s Consumer Price Index (CPI) data for April, set to be released on Tuesday. This data will play a crucial role in shaping market expectations for potential rate cuts by the Bank of Canada (BoC), with predictions suggesting cuts may begin as early as the June meeting.
Technical analysis shows that USD/CAD found support near 1.3620 and is currently trading below the 20-day Exponential Moving Average (EMA) at 1.3667. The 14-period Relative Strength Index (RSI) indicates a sharp volatility contraction.
A potential buying opportunity may arise if the pair breaks above the April 30 high at 1.3785, targeting levels at 1.3838 and 1.3900. Conversely, a breakdown below the May 3 low around 1.3600 could expose the pair to support levels at 1.3547 and 1.3500.
In summary, the USD/CAD pair continues to show volatility amidst a recovering US Dollar and upcoming economic data releases. Traders are advised to closely monitor key technical levels and market developments to make informed trading decisions.