USD/CAD 2022 high remains on radar as RSI holds in overbought zone

USD/CAD Outlook

USD/CAD pulls back from a fresh yearly high (1.3862) as the US Non-Farm Payrolls (NFP) report sparks a bearish reaction in the Greenback, but the exchange rate may stage further attempts to test the 2022 high (1.3978) as the Relative Strength Index (RSI) holds in overbought territory.

USD/CAD 2022 high remains on radar as RSI holds in overbought zone

USD/CAD continues to carve a series of higher highs and lows as the RSI pushes above 70 for the first time since September 2022, and the bullish price action following the Bank of Canada (BoC) meeting may persist as the central bank moves to the sidelines.

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Looking ahead, the update to Canada’s Employment may do little to sway the BoC despite the 21.8K rise in February as ‘the latest data remains in line with the Bank’s expectation that CPI inflation will come down to around 3% in the middle of this year.’ In turn, Governor Tiff Macklem and Co. may promote a wait-and-see approach at the next interest rate decision on April 12 as the ‘Governing Council will continue to assess economic developments and the impact of past interest rate increases.’

Until then, developments coming out of the US may sway USD/CAD as the Federal Reserve sticks to its hiking-cycle, and the update to the Consumer Price Index (CPI) may produce headwinds for the Greenback as the report is anticipated to show slowing inflation.

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Both the headline and core CPI are projected to narrow in February following the stronger-than-expected reading during the previous period, and evidence of easing price growth may keep USD/CAD under pressure as it encourages the Federal Open Market Committee (FOMC) to implement another 25bp rate hike on March 22.

With that said, USD/CAD may snap the recent series of lower highs and lows as the US CPI is expected to show slowing inflation, but the exchange rate may stage further attempts to test the 2022 high (1.3978) as the Relative Strength Index (RSI) holds in overbought territory.

Canadian Dollar Price Chart – USD/CAD Daily

Chart Prepared by David Song, Strategist; USD/CAD Price on TradingView

• The recent series of higher highs and lows in USD/CAD has pushed the Relative Strength Index (RSI) into overbought territory, and the extreme reading in the oscillator is likely to be accompanied by a further advance in the exchange rate like the price action seen last year.
• USD/CAD may continue to approach the 2022 high (1.3978) as long as the RSI holds above 70, with the next area of interest coming in around 1.4040 (23.6% Fibonacci retracement).
• However, failure to hold above the 1.3810 (161.8% Fibonacci extension) region may lead to a textbook sell-signal in the RSI, with a move below 70 in the oscillator raising the scope for a move towards 1.3630 (38.2% Fibonacci retracement).

--- Written by David Song, Strategist

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