Fundamental analysis of USD/CAD

Currency pair USD / CAD is currently experiencing a phase of bearish consolidation, hovering around the mark 1.3120. There are several factors contributing to this development.

Crude oil prices got some support due to political unrest in Russia, which caused concerns about possible supply disruptions. In addition, Chinese Premier Li Qiang stated that the country is on track to achieve an annual economic growth target of around 5%. These factors contribute to the expectation of higher fuel demand as the U.S. begins its summer driving season, which supports crude oil prices.

The Canadian dollar, is closely tied to commodity prices, especially crude oil. Support for crude oil prices, in turn, has strengthened the Canadian dollar, causing the USD/CAD pair to decline for two consecutive days. This decline was exacerbated by a recovery in global risk sentiment and positive stock market performance, which weakened the U.S. dollar's appeal as a safe haven asset. However, U.S. dollar losses are tempered by the Federal Reserve's hawkish stance.

Market participants are cautious and look forward to the release of data on consumer inflation in Canada. The forecast points to a slowdown in core Canadian CPI growth to 3.4% in May, down from 4.4% y/y. In addition, the Bank of Canada (BoC) core Consumer Price Index is expected to slow.

In addition to Canadian data, traders are keeping an eye on U.S. economic data including durable goods orders, consumer confidence index, new home sales and the Richmond Manufacturing Business Activity Index as they may affect the U.S. dollar exchange rate.

Meanwhile, the Canadian dollar has been strengthening 3.5 percent against the U.S. dollar over the past month. This strengthening comes amid the approaching end of the Bank of Canada's monetary tightening cycle. The market sees the strength of the Canadian economy backed by strong immigration, low unemployment, a diversified economy and a strong stock market. The IMF even predicts that Canada's GDP will outpace that of the G7 countries in 2024.

The Bank of Canada has been pleasantly surprised by the strong economic growth and has resumed tightening monetary policy in response to rising inflationary pressures caused by strong demand. There is a 75% chance that a 25 basis point rate hike will occur as soon as July.

Overall, the Canadian dollar is showing resilience due to a combination of strong domestic economic data and crude oil price support. 

Technical Analysis and Scenarios:

The Bollinger Bands are pointing in a downward direction and the price is trading flat in the lower range, which supports the bearish scenario.

Main scenario (SELL)

Recommended entry level: 1.31200.

Take Profit: 1.3000.

Stop loss : 1.31500.

Alternative scenario (BUY)

Recommended entry level: 1.31630.

Take Profit: 1.33140.

Stop loss: 1.31000.