Canadian Dollar Forecast: USD/CAD Bounces from 1.3600 Support, Key Data Looms

USD/CAD Key Points

• A strong Consumer Confidence report and a 3-week high in the 10-year bond yield is driving the US dollar higher.
• USD/CAD bulls are likely to emerge to defend the 1.3605 level, potentially leading to a bullish breakout from the descending channel and opening the door for a move back toward 1.3800.
• Thursday’s US GDP revision, along with Friday’s combination of the US Core PCE report and Canadian GDP reading for March, will be the key fundamental data releases to watch for USD/CAD traders.

The FX market remains relatively quiet on the first “real” trading day of the week, with a touch of broad strength in the US dollar standing out as the most notable development. The rally in the greenback is being driven by rising US Treasury yields, which in turn can be chalked up to two key developments.

First, this morning’s Conference Board Consumer Confidence reading came in much stronger than anticipated at 102.0 vs. 96.0 expected; last month’s reading was also revised up to 97.5. Secondly, today’s US treasury bond auctions both saw 1bp tails, indicating demand for bonds was lower than expected and pushing up bond yields. Between a stronger-than-anticipated consumer and the 10-year bond yield hitting its highest level in more than three weeks, the US dollar is the clear beneficiary.

Notably, this rally has occurred despite strength in oil prices, which have historically favored the Canadian dollar given the importance of crude oil as an export for Canada.

Canadian Dollar Technical Analysis – USD/CAD Daily Chart

Source: TradingView, StoneX

Looking at the chart, USD/CAD is nearing a critical support level. After bursting out to fresh 2024 highs in early April, the North American pair has spent the last six weeks in a controlled pullback to the previous breakout level at 1.3605. That previous level of resistance, now that it’s broken, is providing support for the pair, along with the rising 50-day EMA and bullish trend line off the early January low.

Technically speaking, bulls are likely to emerge to defend the 1.3605 level, potentially leading to a bullish breakout from the descending channel and opening the door for a move back toward 1.3800. That said, a bearish breakdown is still a possibility, even if it’s not necessarily the most likely development. In the case a confirmed break below the 200-day MA near 1.3575, USD/CAD could see the selling accelerate toward the mid-1.34400s, where the pair consistently found support in February and March.

Looking ahead Thursday’s US GDP revision, along with Friday’s combination of the US Core PCE report and Canadian GDP reading for March, will be the key fundamental data releases to watch for USD/CAD traders.

-- Written by Matt Weller, Global Head of Research

Check out Matt’s Daily Market Update videos on YouTube and be sure to follow Matt on Twitter: @MWellerFX