The USD/CAD currency pair is experiencing renewed interest as it approaches its highest level since April 2020, currently around the 1.4270 level. The surge can be attributed to a mix of influences, including domestic political turmoil in Canada and strengthening demand for the US dollar. The recent resignation of Canada’s Deputy Prime Minister and Finance Minister over differences with Prime Minister Justin Trudeau regarding economic strategies has sent shockwaves through the market. This political instability, coupled with the Bank of Canada’s dovish stance and forecasts of lower economic growth, has placed downward pressure on the Canadian dollar.
On the other hand, the US dollar is benefiting from a shift in market sentiment regarding the Federal Reserve’s monetary policy. Investors are increasingly optimistic about less aggressive interest rate cuts following encouraging macroeconomic data from the US. Recent reports indicate significant growth in the services sector, with the S&P Global Services Purchase Managers Index reaching its highest level in over three years. This has raised expectations that the Fed will adopt a more reserved approach to rate adjustments, contributing to a rise in US Treasury bond yields.
Furthermore, geopolitical tensions surrounding supply disruptions due to sanctions on Russia and Iran have supported a rebound in crude oil prices, yet this has not translated into a stronger Canadian dollar. As oil prices struggle to sustain upward momentum, the Loonie remains vulnerable. Traders are likely to proceed with caution ahead of the Canadian consumer price index release, which may influence market sentiment.
Technical analysis shows that the current upward move in USD/CAD appears to be facing potential resistance near the 1.4300 level. However, should upward momentum continue, targets could extend towards the 1.4360 – 1.4365 range. Conversely, a downward correction may find support around the 1.4200 level, with further declines possibly testing the 1.4100 level, which could serve as a strong base if breached decisively.
