The USD/CAD currency pair maintains a downward trend, despite the fact that the price of oil is close to local lows. Nevertheless, the fundamentals continue to support the U.S. dollar. Therefore, one can expect its further strengthening, but only within the downtrend framework.
Oil prices remain in a flat range. That’s why the currency dynamics is mostly influenced by the monetary policy of global central banks. The U.S. dollar historically strengthens during a global key rate hike, as investors flee to a safer currency. Given that the new rate hike cycle is approaching, the U.S. currency will likely continue to rise.
Morgan Stanley expects the Federal Reserve (Fed) to raise the key rate at its July meeting. Last week, Chairman Jerome Powell implied that the cycle of monetary policy tightening will continue.
Morgan Stanley predicts a 0.25% rate hike in July. Some analysts were puzzled that it remained unchanged at the latest meeting, and the regulator projected additional hikes in the future. The Fed Chairman made the intention of further key rate hikes clear.
At the same time, the consumer price growth outlook remains negative.
The risks of a prolonged period of elevated inflation have increased despite the current decline in prices in many parts of the world, Bank for International Settlements chief economist Claudio Borio told the German daily newspaper FAZ on Monday.
The analyst noted that the core inflation (which measures prices growth excluding fluctuating energy and food) is stable. This makes the next phase of fighting inflation more difficult. One of the reasons for this effect is that people adjust their behavior to higher inflation when it lasts for a longer period of time, which in turn leads to its entrenchment at a high level.
According to technical analysis, the USD/CAD currency pair is now moving in an accelerated downtrend. Important support levels have been broken down, but it is not clear if the Canadian dollar can continue to strengthen. Therefore, in this situation, it is possible to benefit from a potential rebound. The upper boundary of the downtrend at 1.32 will be the growth target. A stop-loss may be placed upon updating the lows at the round level of 1.31.
The USD/CAD pair growth:
Take profit – 1,32
Stop-loss – 1,31
This content is for informational purposes only and is not intended to be investing advice.
