USD/CAD gaining traction on dovish BoC and falling crude prices
- BoC’s Poloz: BoC is data dependent.
- Falling crude prices hurt the CAD.
- USD/CAD gained more than 100 pips on Tuesday so far.
The USDCAD is trading at around 1.2940 after gaining more than 100 pips so far on Tuesday.
The US Dollar is on the backfoot today as US inflation data didn’t really surprise the market although it came in line with market's expectations. So why is the USD/CAD rising while the USD is down against most major currencies? After all, it isn’t called the Loonie by chance…
The are several factors affecting the recent USDCAD bull move. Bank of Canada's Governor Poloz made dovish comments earlier in the US session where he said that Canadian economy can sustain further growth without generating inflation. He also said that the BoC was data-dependent, in other words, the BoC is waiting for inflation in the macro numbers before hiking.
Additionally, Donald Trump fired his Secretary of State Rex Tillerson to be replaced by Mike Pompeo which leans to the hawkish side, therefore reinforcing the USD against CAD.
The last element that put the CAD on the backfoot is the decline of the crude oil. Since the start of 2018, oil has been predominantly down or sideways. Canada's economy relies a lot on the price of oil.
USD/CAD daily chart
On the technical side, the USD/CAD has found some resistance at the 1.2950 psychological level. The Loonie has created a bull channel in February and March and tested the 200-period SMA last Monday (March 5). The trend and the bullish momentum are still intact. If the buyers can successfully overcome the 1.3000 handle it will likely open the gates to the 1.3400 level which is the 78.6% Fibonacci retracement of the May -September 2017 down move. Support is now 1.2800 cyclical low and 1.2500 23.6% Fibonacci retracement.