USDCAD falls as dollar weakens amid positive Canadian data

USDCAD declines amid growing political uncertainty and pressure on the greenback. The pair traded at 1.38804 (CAD per USD) during the first half of Wednesday's session, May 21.

The US dollar weakened amid growing political uncertainty and sustained pressure on the currency. Moody’s downgrade of the US credit rating has heightened concerns about the nation’s long-term economic resilience, further fueling negative sentiment toward the greenback. Investors remain cautious, wary of potential impacts from ongoing trade negotiations and policy uncertainties under the Trump administration.

Particular concern surrounds President Trump’s tax plan, which risks substantially widening the budget deficit and expanding the national debt. The proposed measures threaten economic stability, exacerbating bearish dollar sentiment. Investors fear the plan’s implementation consequences, adding downward pressure on the US currency and sustaining USDCAD’s decline.

The Canadian dollar, conversely, received strong support following the inflation data release. Canada's core inflation metrics surpassed expectations, climbing above 3%, significantly reducing the likelihood of a Bank of Canada rate cut in June. Markets have slashed pricing for a June cut from 65% to 33%, boosting the loonie's appeal.

The technical setup for USDCAD points to a downward trend. The pair trades below key EMA (20) and EMA (50) levels, confirming the US dollar's current weakness. The Chaikin Oscillator remains in negative territory, issuing a sell signal. Immediate resistance stands at 1.3885, where significant buying interest was previously observed. A break below would expose the major support level at 1.38140.

Accelerating inflation and diminished expectations for Bank of Canada rate cuts create favorable conditions for selling USDCAD. However, the strong economic interdependence between the US and Canada limits significant exchange rate movements.

Current recommendation:

Sell on break below 1.38850. Take Profit — 1.38140. Stop Loss — 1.39350.