USD/CAD in Focus: BoC Minutes and Economic Indicators

Stay cautious as USD/CAD remains scrutinized with BoC minutes and economic indicators influencing investor sentiment.

The recent Bank of Canada (BoC) minutes have failed to bolster the Canadian Dollar (CAD) as dismal economic data weighed on market sentiment. Despite the hawkish tone in the BoC’s Summary of Deliberations, subsequent economic indicators, including PMI and building permits, painted a grim picture for the Canadian economy. USD/CAD remained cautious, hovering around the 1.38 handle, following a week marked by hawkish comments from the Federal Reserve (Fed) and persistent Canadian economic woes.

USD/CAD in Focus – BoC Minutes and Economic Indicators

The markets reacted bearishly to the Non-Farm Payroll (NFP) miss, leading to a dovish repricing of Fed rate hike expectations. However, the full extent of the impact on the US economy remains uncertain, prompting investors to await further data. Fed Chair Jerome Powell’s upcoming monetary policy speech will likely provide crucial insights, leaving room for future rate hikes while dispelling talk of rate cuts.

The BoC’s stance, as reflected in their recent statements, indicated a readiness to raise rates further if necessary, acknowledging the need for tightening to restore price stability. Despite this, CAD downside persisted, fueled partly by the decline in crude oil prices, a key Canadian export. OPEC+ might address this issue by extending voluntary production cuts, offering a glimmer of hope for CAD bulls.

The USD/CAD displayed bearish divergence on the technical front, with the Relative Strength Index (RSI) showing lower highs while USD/CAD prices recorded higher highs. Although the pair remained within a long-term upward trending channel, the potential for a retest of channel support loomed if crude oil prices strengthened alongside a weaker US dollar.

Key resistance levels stood at 1.3899 and 1.3800, while crucial support levels included 1.3700 and 1.3668 (channel support) along with the 50-day moving average. According to IG Client Sentiment data, retail traders exhibited mixed sentiments, with 71% holding long positions on USD/CAD at the time of this analysis.

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