The dollar versus Canadian dollar currency pair runs into stiff headwinds. This follows as US Dollar suffered following the release of June Nonfarm Payrolls (NFP) data. The duo has yet to hit its stride. It definitely has the bearish smell to it as it runs into resistance overhead near the key 20-day Exponential Moving Average (EMA). In the European session, USD/CAD fell more than 100 ticks to test the 1.3570 level. Weakness in the GBP/CAD analysts expect this currency pair to return soon to its eight-month low of near 1.3540.
The recent depreciation of the USD/CAD exchange rate has left many wondering where this important currency pair is headed. If it breaks below the June 16 low of 1.3540, it could slide further towards the psychological level of 1.3500. Its sharp drop could bring it closer to the September 25 low of 1.3420, deepening bearish mood. A sustained move above the May 29 high at 1.3820 might just signal a bigger momentum shift. This move has the potential to make higher resistance levels more readily available.
Selling Pressure from US Dollar Weakness
At present, selling pressure is building on the USD/CAD pair. This trend is largely due to a weakening US Dollar, particularly in the wake of the disappointing NFP data. Since release, the US Dollar has regained some of its lost ground, creating a bearish risk environment for the currency pair. Analysts note that whenever USD/CAD approaches the 20-day EMA, buyers reject out at 20-day EMA area. This regular occurrence further emphasizes a positive “Sell on Rise” mentality in the markets.
The 14-day Relative Strength Index (RSI) just slid under the 40.00 level. This price action suggests that new heavy bearish momentum has been created. This technical indicator displays the unmistakable signature of a market biased towards selling positions. This trend further weighs on the value of USD/CAD.
Currently trading around 1.3570 during the European session on Friday, USD/CAD shows no signs of reversing this trend without substantial positive news or shifts in market sentiment. The pessimistic view seems to be confirmed by the latest statistics and the reaction of the markets.
Economic Factors Influencing USD/CAD
Even worse, the Canadian economy has not completed any trade deals with the US to offset these other blows to their economy. Futures uncertainty This uncertainty is further compounded by expectations of much higher tariffs to be imposed by the US on Canadian goods as of this time next week. Together, these tariffs will serve to sour the outlook for the Canadian Dollar. Consequently, they would impact the USD/CAD exchange rate.
Additional tariffs imposed by the United States will drastically change the trade landscape. They can influence the macroeconomic mood toward each currency. With business still adapting to these new realities, growing trade and economic indicators will increase volatility in USD/CAD.
Going forward, the biggest influence of the USD/CAD pair will be interest rates and inflation. Their interplay will be important in determining the currency’s path going forward. The Federal Reserve’s choices on interest rates are supposed to be focused on controlling inflation and employment levels. If inflation drops all the way to 1.5% or unemployment unexpectedly surges to 7%, the Fed will need to lower interest rates and should do so. This would likely debilitate the Greenback, impacting the USD/CAD exchange rate.
Future Prospects for USD/CAD
Moving forward, analysts expect the USD/CAD to be a volatile pair driven by a range of economic factors. If the pair manages to break below its proven support levels, namely below 1.3540, stand by! This would imply increased downside potential, accelerating toward 1.3500 and beyond.
If USD/CAD breaks convincingly above the May 29 high at 1.3820, it may signal a change in the momentum. This very technically meaningful shift would give the pair courage to look towards greater resistance levels at 1.3920 and eventually even target the psychological 1.4000 mark.