Analysis of the US Dollar/Canadian Dollar Exchange Rate: Retests 5-Month High Near 1.3670 Ahead of BoC Policy

In anticipation of the BoC’s decision to leave interest rates alone, the USD/CAD has returned to levels last seen near 1.3670, a five-month high.

As inflation rises and the economy weakens, the Bank of Canada may decide to keep interest rates at 5%.

The USD/CAD pair rallied strongly after detecting strong buying interest close to the 20-day EMA.

Ahead of Wednesday’s announcement of the Bank of Canada’s (BoC) interest rate decision, the USD/CAD pair prints a fresh five-month high at 1.3670. Investors believe the policy gap between the Fed and BoC will widen since the BoC is widely expected to maintain the status quo in monetary policy.

As hiring and consumer expenditure lag due to increasing inflation pressures, BoC Governor Tiff Macklem may decide to leave interest rates constant at 5%.

Futures for the S&P 500 were slightly down in Europe, suggesting a cautious start to trading following the long weekend. Fears of a US recession have diminished as inflation has slowed and the labor situation has remained steady, leading the US Dollar Index (DXY) to reach its highest level in five months. As a result, the yield on 10-year US Treasury bonds is now close to 4.23%. As US markets reopen after a long weekend, the USD Index is expected to see explosive movement in the New York session.

The US dollar rose against the Canadian dollar, reaching a new five-month high of 1.3670. After the pair detected strong buying demand around the 20-day Exponential Moving Average (EMA) in the 1.3520 area, it rebounded strongly. There is no evidence of oversold conditions or divergence on the Relative Strength Index (14), which is now trading in the positive region of 60.00–80.00.

The Canadian dollar needs to break out above the 1.3746 and 1.3820 resistance levels from March 27 and March 24, respectively, to continue its upward trend.

In contrast, a decline below the 1.3490 low reached on September 1 would send the asset tumbling toward the 1.3440 low seen on August 15 and the 1.3387 peak seen on July 7.

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