The USD/CAD currency pair reached its lowest level since September 2022. The recent strengthening of the Canadian dollar was due to the weakening of the dollar index against most currency pairs. All of this is caused by investor expectations for a future easing in the U.S. monetary policy. However, after the Fed meeting last week, investors' opinions changed.
New forecasts by the Fed signaled the possibility of a further half-percent increase in borrowing rates by the end of the year. After that, the probability of an increase by 25 basis points in July was estimated by traders at 72%.
The Fed's policy tightening is positive for the dollar. Therefore, the dollar index may attempt a reversal.
Investors are waiting for a speech by Fed Chairman Jerome Powell in Congress on Wednesday and Thursday to get more signals about the future direction of the monetary policy.
According to Thomas Barkin, head of the Fed's Richmond office, further rate hikes could create the risk of a worse economic slowdown. He and the heads of other Fed offices are in favor of a monetary policy tightening.
The Canadian dollar is traditionally dependent on oil prices, as the country is one of the largest oil producers. Canadian currency strengthened in recent weeks despite local lows in oil prices. It is assumed that the Canadian dollar is temporarily ignoring the dynamics of oil, and pays more attention to central bank decisions. Therefore, even if oil rises, the Canadian currency may resume weakening. It is enough for the Fed to continue giving hawkish comments on the U.S. monetary policy.
According to the technical analysis, the USD/CAD currency pair has reached local lows over the past six months. The quotes are at the lower boundary of a wide flat range, so there is a high probability of reversal from the current levels. Also the strongest RSI indicator oversold over the last year is supporting the growth of USD/CAD. As it was written earlier, the dollar index also gives signals for a Canadian currency reversal. It is necessary to chart the Fibonacci from the current decline wave to determine the target growth levels.
The first Fibonacci level of 0.236 will be the upside target, which corresponds to the price of 1.330. Stop-loss can be set at a decrease below the current minimum at 1.318.
Growth of the USDCAD currency pair:
Take profit – 1.330
Stop-loss – 1.318
This content is for informational purposes only and is not intended to be investing advice.
