USD/CAD Outlook: Ascending trend-line could protect the downside ahead of Canadian CPI

  • USD/CAD attracts some dip-buying during the Asian session amid a modest USD strength.
  • Bullish oil prices underpin the Loonie and act as a headwind amid a positive risk tone.
  • Investors now look to Canadian consumer inflation figures for some meaningful impetus.

The USD/CAD pair once again show resilience below the 1.3600 mark and attracts some dip-buying during the Asian session on Wednesday. The US Dollar is back in demand and turns out to be a key factor lending some support to the major. The Bank of Japan’s policy tweak, widening the range for fluctuations in the 10-year government bond yield, triggers a sell-off in bond markets. This, along with a more hawkish commentary by the Federal Reserve, continues to push the US Treasury bond yields and benefit the greenback.

It is worth recalling that the US central bank indicated that it will continue to raise rates to crush inflation. Furthermore, policymakers projected at least an additional 75 bps increases in borrowing costs by the end of 2023. That said, a goodish recovery in the global risk sentiment – as depicted by a generally positive tone around the equity markets – keeps a lid on any meaningful upside for the safe-haven buck. Furthermore, steady crude oil prices underpin the commodity-linked Loonie and seem to cap the USD/CAD pair.

The American Petroleum Institute reported a larger-than-expected draw in the US crude oil inventories. This comes on the back of the latest optimism over the easing of COVID-19 curbs in China and offers some support to oil prices. That said, worries about rising cases in the world’s top oil importer China act as a headwind for the black liquid. The mixed fundamental backdrop, meanwhile, warrants some caution for aggressive bullish traders and before positioning for a further intraday appreciating move for the USD/CAD pair.

Market participants now look forward to the release of Canadian consumer inflation figures, due later during the early North American session. The US economic docket features the release of the Conference Board’s Consumer Confidence Index, which, along with the US bond yields and the risk sentiment, will drive the USD demand. Traders will further take cues from oil price dynamics to grab short-term opportunities around the USD/CAD pair.

Technical Outlook

From a technical perspective, spot prices, so far, have managed to hold above the 100-period SMA on the 4-hour chart, currently around the 1.3580-1.3575 region. This is closely followed by the 1.3560-1.3550 area, or a one-month-old ascending trend-line support, currently around mid-1.3500s. Given the recent repeated failures near the 1.3700 mark, a convincing break below the said trend-line support will shift the bias in favour of bearish traders. The USD/CAD pair might then turn vulnerable to weaken further below the 1.3500 psychological mark and test the next relevant support near the 1.3450 area.

On the flip side, the immediate hurdle is pegged near the 1.3650 zone, above which bulls are likely to make a fresh attempt towards conquering the 1.3700 round figure. Some follow-through buying has the potential to lift the USD/CAD pair towards the 1.3745-1.3750 resistance en route to the November monthly swing high, around the 1.3800-1.3810 region. The momentum could get extended further towards the 1.3840-1.3850 region, above which spot prices could climb to the 1.3900 level and the YTD peak, around the 1.3975-1.3980 zone.

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