The USD/CAD currency pair is trading around the 1.3650 level today. This scenario depicts a very unfavorable environment for U.S. dollar/U.S. dollar. The specter of renewed stagflation risks in the United States is roiling markets. Conversely, almost a year of ongoing trade uncertainties are forcing significant downside pressure on the pair. It floats only slightly higher than an eight month low. Some analysts now caution that even deeper declines are possible, particularly if it breaks below that key 1.3650 level.
New economic data out of the United States has raised concerns. Some are worried we might even be headed for a repeat of stagflation, where economic growth stagnates as inflation surges. This has added on to already-enormous existing trade uncertainty, most notably in the trade staring contest between the U.S. and China. As a result, the U.S. dollar is at increased risk, which has led to USD/CAD trading on the defensive.
Economic Indicators and Their Impact
As one of the last major central banks to do so, the Bank of Canada (BoC) today left interest rates unchanged at 2.75%. This decision has buoyed the Canadian dollar up to 75 cents US. The USD/CAD pair appears quite vulnerable just over the 1.3650 level after this policy move. Analysts are alerting that if it falls below this mark it may fall further down to 1.3600, a major psychological number and then potentially down to 1.3500.
Growing disappointment over a slowing U.S. economy have fueled the bearish sentiment building around the U.S. dollar. That optimism has been slapped down by recent data, especially the private sector payroll number and the ISM Services Purchasing Managers’ Index (PMI). Consequently, the USD is falling further behind the CAD. The recent economic signals point to weakness in the long-term prospects of the U.S. dollar. That trend will likely persist in the near term.
Technical Analysis of USD/CAD
From a technical standpoint, the USD/CAD pair has put in a shallow retracement. For one, it has retraced back over 78.6% of its move between its late Sept low of ~1.3400 and its early Feb high of ~1.4800. Current position around 1.3650 indicates very strong bearish momentum. This bearish sentiment has been particularly clear recently as the 14-day Relative Strength Index (RSI) has fallen to approximately 33.00.
Additionally, the falling 20-day Exponential Moving Average (EMA), which is currently located around 1.3800, suggests short-term bearish momentum. If USD/CAD can recover above the May 29 high of 1.3820, it could signal a reversal in trend toward bullish territory. Long-term recovery from any such event would lead to increased levels of resistance. As a result, it may aim for the May 21 peak at 1.3920 and even the 1.4000 mark seen on May 15.
Future Outlook for USD/CAD
Looking forward, economic developments will be at the top of the list for market participants, as they may weigh most significantly on USD/CAD trading sentiment. Second, the ongoing trade uncertainty between the U.S. and China is driving the dollar’s current weakness. Retaliatory tariffs, meanwhile, have proven doubly damaging for its worth against the Canadian dollar.
So long as these stagflation risks and trade tensions hang in the balance, odds are good that USD/CAD will come under increasing pressure. A break below key support levels could accelerate declines, while a recovery above certain resistance points may provide temporary relief for the U.S. dollar.