USD/CAD has continued to slide for much of the past three weeks as the US dollar has remained under sustained pressure while the Canadian dollar has benefited from, among other factors, provisional exemption from US President Trump’s imposition of import tariffs. Recent data from both the US and Canada has also helped to strike a contrast between the US and Canadian dollars – last Friday’s key employment releases from both countries showed the US non-farm payrolls fall far short of expectations while Canadian job creation significantly beat forecasts.
On Wednesday morning, as markets awaited the release of minutes from the Federal Reserve’s last FOMC meeting, the US consumer price index for March showed an unexpected dip of -0.1% in consumer inflation against a prior estimate of no change. While the US dollar was not immediately pressured due to this lackluster inflation reading, the greenback subsequently extended the slide that has been in place since Friday.
Looking ahead towards the balance of this week and into next week, the most relevant event aside from Wednesday afternoon’s release of FOMC meeting minutes will be next Wednesday’s Bank of Canada rate and policy decision. With the BoC on a rather clear tightening track towards higher interest rates, much like the Fed, next week’s Bank of Canada decision could have a strong impact on the Canadian dollar.
Amid continued pressure and bearish sentiment on the US dollar due to political, trade, and economic data concerns, as well as recent upside momentum for the Canadian dollar, USD/CAD could be poised to extend its slide from late March. The current tumble from March’s 1.3123 peak formed a bearish head-and-shoulders pattern which was broken down in early April. Since that breakdown, the currency pair has further broken down below both its 50-day and 200-day moving averages. On Wednesday, USD/CAD extended its fall to dip slightly below the 62% Fibonacci retracement of the late-January low to the late-March high. With any further extension below this level (around 1.2580), further pressure on the US dollar and support for the Canadian dollar could push USD/CAD towards its next major downside target around the 1.2400 support area.