USD/CAD Analysis: Recovers further from two-week low ahead of US/Canadian jobs data

• USD/CAD gains some follow-through traction amid a further USD recovery from a two-week low.
• Bullish crude Oil prices could underpin the Loonie and keep a lid on any further gains for the pair.
• Traders might also prefer to wait for the release of the US NFP and Canadian monthly jobs report.

The USD/CAD pair builds on the overnight goodish rebound from the 1.3480-1.3475 region, or a two-week low and continues scaling higher for the second straight day on Friday. The momentum is exclusively sponsored by some follow-through US Dollar (USD) buying, supported by Federal Reserve (Fed) officials’ cautious comments on the outlook for possible interest rate cuts this year. Richmond Fed President Thomas Barkin said that he was open to interest rate cuts once it is clear that progress on inflation will be sustained and applied more broadly in the economy. Adding to this, Minneapolis Fed Bank President Neel Kashkari said that he penciled in two rate cuts for this year at the March monetary policy meeting, though none may be required if inflation continues to move sideways.

Meanwhile, hawkish Fespeak keeps the US Treasury bond yields elevated, which, along with persistent geopolitical tensions, take its toll on the global risk sentiment and further act as a tailwind for the safe-haven buck. The USD/CAD pair, however, remains below the 1.3600 mark amid bullish crude Oil prices, which stands tall near its highest level in more than five months and tends to underpin the commodity-linked Loonie. Iran has vowed to retaliate against Israeli attack on its embassy in Syria, raising the risk of a further escalation of conflicts in the Middle East. Furthermore, the recent Ukrainian drone attacks on refineries in Russia and the OPEC+ clampdowns on some countries to increase compliance with output cuts should see crude output fall further in the second quarter. 

Apart from this, the optimism over signs of improving Oil demand from China – the world's largest crude importer. This, in turn, suggests that the path of least resistance for the black liquid is to the upside and warrants some caution before positioning for any further appreciating move for the USD/CAD pair. Traders might also prefer to wait for more cues about the Fed's rate-cut path, which should continue to play a key role in driving the USD demand in the near term. Hence, the focus remains glued to the US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report. Friday's economic docket also features the release of Canadian jobs data, which, along with Oil price dynamics, will influence the Canadian Dollar (CAD) and produce short-term opportunities. 

Technical Outlook

From a technical perspective, the USD/CAD pair showed some resilience below the 200-day Simple Moving Average (SMA) on Thursday and the subsequent recovery reinforced a short-term ascending trend-channel support. Meanwhile, oscillators on the daily chart have been gaining positive traction and favours bullish traders. That said, it will be prudent to wait for a sustained strength beyond the 1.3600-1.3610 supply zone before positioning for any further gains. 

The USD/CAD pair might then accelerate the positive move towards challenging the top boundary of the aforementioned trend channel extending from January, currently pegged near the 1.3680 region. Some follow-through buying will be seen as a fresh trigger for bullish traders and push spot prices beyond the 1.3700 round-figure mark, towards the next relevant hurdle near the 1.3740-1.3750 region.

On the flip side, the 1.3525 horizontal zone could protect the immediate downside ahead of the 1.3500 psychological mark. The latter coincides with the 200-day SMA and is followed by the ascending channel support, near the 1.3480-1.3475 region. A convincing break below will set the stage for deeper losses and drag the USD/CAD pair to the 1.3420-1.3415 intermediate support en route to the 1.3400 round figure.

USD/CAD daily chart