USDCAD is moving in Ascending channel and market has fallen from the higher high area of the channel
USD/CAD Holds Positive Ground: What’s Fueling the Movement?
The USD/CAD pair has been on a positive trend recently, holding steady around 1.3745 during the early European session. This upward movement has been driven by a combination of factors, primarily the strong performance of the US Dollar (USD) and higher US Treasury bond yields. Let’s delve deeper into what’s influencing this currency pair and what to watch for in the near future.
The Fed’s Cautious Stance and Its Impact on the Greenback
One of the main factors supporting the USD/CAD pair is the Federal Reserve’s (Fed) cautious stance. The Fed’s approach has created a favorable environment for the USD, which in turn supports the currency pair. Despite some weaker US economic data recently, the cautious tone from Fed officials continues to underpin the Greenback.
For instance, the recent US ISM Manufacturing PMI for June came in weaker than expected. This data point has bolstered the case for a potential rate cut by the Fed in September. Market participants are now pricing in nearly 68% odds of a rate cut, up significantly from a month ago, according to the CME FedWatch tool.
San Francisco Fed President Mary Daly emphasized that the Fed remains data-dependent and refrained from giving a clear forecast on the policy path forward. This cautious and measured approach by the Fed officials supports the US Dollar in the short term, despite the backdrop of weaker economic data.
Canada’s Economic Indicators and Bank of Canada’s Moves
On the other side of the USD/CAD pair, we have Canada’s economic indicators and the recent actions of the Bank of Canada (BoC). One key piece of data to watch is the Canadian S&P Global Manufacturing PMI for June. This figure is expected to improve to 50.2 from 49.3 in May, signaling a potential rebound in the manufacturing sector.
Moreover, the Bank of Canada recently cut interest rates to 4.75% on June 5, marking it as the first G7 nation to ease monetary policy in the current cycle. During the press conference, BoC Governor Tiff Macklem highlighted that while Canada is in a position to cut rates, there are limits to how far the BoC can diverge from the Fed. This implies that future rate cuts will be carefully considered and will require evidence that inflation is under control.
USDCAD is moving in box pattern and market has fallen from the resistance area of the pattern
Douglas Porter, chief economist at BMO Economics, pointed out that this rate cut is likely the first of several, although the path forward will not be straightforward. The BoC’s tone is slightly more dovish than anticipated, but each cut will be contingent on calming inflation trends.
Looking Ahead: Key Events to Watch
Several key events and data releases could influence the USD/CAD pair in the near future. Among these, the speeches from Fed officials, including Fed Chair Jerome Powell, will be closely monitored. Any hints or indications about future monetary policy moves could significantly impact market expectations and the currency pair.
Additionally, upcoming US economic data, such as employment figures and inflation reports, will be critical in shaping the Fed’s policy decisions. For Canada, any further developments in the manufacturing sector and other economic indicators will be essential in determining the BoC’s next moves.
Summary
The USD/CAD pair has been on an upward trend, driven by the strong US Dollar and higher US Treasury bond yields. The Fed’s cautious stance has created a favorable environment for the Greenback, while the Bank of Canada’s recent rate cut has added another layer of complexity to the pair’s dynamics. Key events and data releases in the coming weeks will be crucial in shaping the future direction of the USD/CAD pair. Keep an eye on speeches from Fed officials and economic data from both the US and Canada to stay informed and make well-informed trading decisions.
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