- USD/CAD gains positive traction for the third straight day, though the uptick lacks bullish conviction.
- Fears of a US recession and Fed rate cut bets weigh on the USD and should keep a lid on the major.
- Oil prices sit near a multi-week high, underpinning the Loonie and contributing to capping spot prices.
The USD/CAD pair built on last week's modest bounce from over a one-month trough and attracted some follow-through buying for the third successive day on Monday. Spot prices build on the steady intraday ascent through the first half of the European session and climb to a one-week high, around the 1.4345 area. However, a combination of factors might hold back bullish traders from placing aggressive bets and cap any meaningful appreciating move for the currency pair.
Concerns over slowing US economic growth persisted on the back of the uncertainty over US President Donald Trump's trade tariffs, which could force the Federal Reserve (Fed) to resume its rate-cutting cycle soon. This, in turn, drags the USD Index, which tracks the Greenback against a basket of currencies, away from a multi-week top touched last Thursday and could cap the upside for the USD/CAD pair. However, the risk-off mood limits deeper losses for the safe-haven buck.
Trump rattled markets last week by imposing a 25% tariff on all non-American cars and light trucks ahead of tariffs on April 2. Moreover, the Wall Street Journal reported on Sunday that the Trump administration is considering higher trade tariffs against a broader range of countries. Adding to this, Trump warned that he may impose secondary tariffs of 25% to 50% on buyers of Russian oil if he feels that Russian President Vladimir Putin is blocking his efforts to end the war in Ukraine.
Furthermore, Trump also threatened Iran with bombing and secondary tariffs if it did not come to an agreement on the nuclear program, raising the risk of a potential supply disruption. This keeps Crude Oil prices close to a multi-week high touched last week and underpins the commodity-linked Loonie, which might further contribute to keeping a lid on the USD/CAD pair. Hence, it will be prudent to wait for strong follow-through buying before positioning for any further gains.
USD/CAD daily chart
Technical Outlook
From a technical perspective, spot prices last week showed some resilience below the 100-day Simple Moving Average (SMA). The subsequent move up, along with the fact that oscillators on the daily chart have just started gaining positive traction, supports prospects for a further appreciation for the USD/CAD pair. Some follow-through buying beyond the 1.4350 area will reaffirm the positive bias and allow bulls to reclaim the 1.4400 round figure. The momentum could extend further towards the 1.4440 intermediate hurdle en route to the 1.4480 region, the 1.4500 psychological mark, and the monthly swing high, around the 1.4545 region.
On the flip side, the 1.4300 round figure now seems to protect the immediate downside ahead of the 100-day SMA, currently pegged near the 1.4270 area. This is followed by last week's swing low, around the 1.4235 region, which if broken decisively will be seen as a fresh trigger for bearish traders. The USD/CAD pair might then turn vulnerable to prolong its downtrend below the 1.4200 mark, towards testing the year-to-date low, around the 1.4150 region touched on February 14.
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