USDCAD rises due to fears of U.S. default

15 May 2023 173
USDCAD rises due to fears of U.S. default

The USDCAD pair has remained in a sideways range since September 2022. The relevance of this trend was tested twice in April, and now an attempt to strengthen the dollar is forming. Interestingly, the dollar index increases amid difficulties with the U.S. debt ceiling. Following this trend, the American currency will continue to rise as the national debt issue is resolved closer to early June.

A group of former and current leaders of the Treasury Borrowing Advisory Committee send a letter to the Secretary of the Treasury U.S. Janet Yellen. Leading Goldman Sachs executives Beth Hammack and Ashok Varadhan, former JPMorgan chief operating officer, and key Citigroup expert Deirdre Dunn were among them.  

Experts emphasize an imminent threat to the stability of the U.S. Treasury bond market. Protracted negotiations increase the burden on taxpayers and exacerbate the situation. In addition, any Treasury’s delay in payment of interest or principal would be a large-scale and high-profile incident.

According to Secretary of the Treasury U.S. Janet Yellen, the country could default as early as June 1.

The Canadian dollar, in turn, is under pressure from weak oil. The Canadian currency depends on the dynamics of oil prices, as the country is one of the largest oil exporters. Decreasing oil prices hurt the state budget, which leads to the weakening of the national currency.

Concerns over the growing demand for fuel from China and the U.S. offset the bullish sentiment associated with declining oil supplies. As a result, the price of oil declined. 

The price of Brent and WTI benchmarks is falling for the fifth week in a row, and it was the longest weekly decline since September 2022. The weakening of oil was caused by the risk of recession in the U.S. amid the possible default during the first two weeks of June.

According to the technical analysis, the USDCAD pair is traded in a sideways range. Last week there was a rebound from the lower support. Now we should expect the testing of the upper resistance.

1.38 will be the growth target. We will place the stop-loss at the breakthrough of the lower support, which corresponds to 1.33.

Decrease in USDCAD pair:

Take profit — 1.38

Stop-loss — 1.33

This content is for informational purposes only and is not intended to be investing advice.

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