USD/CAD pushes above the 50-Day SMA (1.3557) to register a fresh monthly high (1.3632), and the exchange rate may appreciate over the remainder of the month as it extends the series of higher highs and lows from last week.
USD/CAD rallies ahead of US GDP report with March high on horizon
USD/CAD appears to be tracking the range from the first quarter of 2023 amid the failed attempt to test the February low (1.3263), and data prints coming out of the US may keep the exchange rate afloat as the update to the Gross Domestic Product (GDP) report is anticipated to show sticky inflation.
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The US economy is anticipated to grow 2.0% in the first quarter of 2023 after expanding 2.6% during the previous quarter, while the core Personal Consumption Expenditure (PCE) price index, the Federal Reserve’s preferred gauge for inflation, is expected to increase to 4.8% from 4.4% per annum during the same period.
An uptick in the core PCE may have a larger influence on USD/CAD rather than a slowdown in the growth rate as Fed Governor Lisa Cook warns that ‘the path back to our low and stable inflation goal could be long,’ and the Federal Open Market Committee (FOMC) may take additional steps to combat inflation as the central bank insists that the labor market remains tight.
In turn, the FOMC may vote for another 25bp rate hike at its next interest rate decision on May 3 as inflation remains well above the central bank’s 2% target, and the diverging paths for monetary policy may keep USD/CAD afloat as the Bank of Canada (BoC) promotes a wait-and-see approach.
With that said, data prints coming out of the US may generate a bullish reaction in USD/CAD as the FOMC keeps the door open to implement higher interest rates, and the exchange rate may continue to retrace the decline from the March high (1.3862) as it climbs back above the 50-Day SMA (1.3576).
Canadian Dollar Price Chart – USD/CAD Daily
Chart Prepared by David Song, Strategist; USD/CAD Price on TradingView
- USD/CAD may track the range from the first quarter following the failed attempt to test the February low (1.3263), with the exchange rate trading back above the 50-Day SMA (1.3576) as it extends the series of higher highs and lows from last week.
- A close above 1.3630 (38.2% Fibonacci retracement) may push USD/CAD towards the 1.3810 (161.8% Fibonacci extension) region, with a break above the March high (1.3862) opening up the 2022 high (1.3978).
- However, lack of momentum to close above 1.3630 (38.2% Fibonacci retracement) may curb the bullish price action in USD/CAD, with a move below the moving average bringing 1.3440 (23.6% Fibonacci retracement) back on the radar.
--- Written by David Song, Strategist