The USD/CAD currency pair faces mounting pressure as the financial markets anticipate further interest rate cuts by the Federal Reserve. A surprise decline in US Retail Sales has reinforced these expectations, driving the USD/CAD pair lower. The pair also grapples with uncertainty surrounding President Donald Trump's trade policies. Meanwhile, the Canadian Dollar gains support from waning expectations of a Bank of Canada (BoC) rate cut in March and an upswing in Crude Oil prices.
The prospect of a Fed rate cut looms large, particularly in the wake of disappointing US Retail Sales data. This scenario has led to dovish expectations for the Federal Reserve, especially ahead of the release of the Federal Open Market Committee (FOMC) minutes. The USD/CAD pair's vulnerability is further exacerbated by uncertainties over US trade policies under President Trump, adding layers of complexity to its current trajectory.
On the Canadian side, the outlook appears more favorable. The reduced likelihood of a BoC rate cut in March has bolstered the Canadian Dollar. Additionally, rising Crude Oil prices have provided a tailwind for the CAD. The recent recovery in oil prices marks the third consecutive day of gains, driven by geopolitical tensions such as the Ukrainian drone attack on Russia and concerns about a potential supply dip due to cold weather in the US.
Given these dynamics, analysts predict that the USD/CAD pair may test the psychological 1.4000 mark. This comes after stalling a two-day recovery move from around mid-1.4100s, a two-month low touched last week. The path of least resistance appears to be downward, with any substantial recovery beyond last night's swing high near 1.4215 likely to face formidable resistance.
In technical terms, the 1.4255-1.4260 range serves as a crucial resistance level for the pair. However, should there be sustained momentum beyond this point, the USD/CAD could potentially regain the 1.4300 round-figure mark. Despite this possibility, several factors could cap any significant upside movement for the pair. These include ongoing tariff concerns and tense negotiations between Russia and Ukraine, all occurring against the backdrop of impending Fed Minutes.
Market oscillators on the daily chart remain deeply entrenched in negative territory, although they have yet to enter oversold zones. This indicates that while the USD/CAD pair is under pressure, it has not yet reached a critical tipping point.
Crude Oil prices continue to play a pivotal role in shaping market sentiment and influencing the Canadian Dollar's strength. The ongoing recovery in oil prices this week underscores its impact on the USD/CAD pair's trajectory. Factors such as geopolitical tensions and weather-related supply concerns have contributed to this upward trend in oil prices, reinforcing the CAD's support.
As market participants await the release of the FOMC minutes, attention remains focused on how these factors will interact to impact the USD/CAD pair's movement. Investors and traders closely monitor developments surrounding US trade policies, geopolitical tensions, and economic indicators to gauge potential shifts in market dynamics.