USD/CAD to face stickiness in core US PCE

USD/CAD Outlook

USD/CAD carves a series of lower highs and lows after struggling to test the yearly high (1.3862), but the update to the US Personal Consumption Expenditure (PCE) price index may curb the recent decline in the exchange rate as the report is anticipated to show persistent inflation.

USD/CAD to face stickiness in core US PCE

USD/CAD trades to a fresh weekly low (1.3560) after carving a bearish outside day candle at the start of the week, and the exchange rate may face a further decline if it fails to defend the monthly low (1.3555).

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Nevertheless, the slew of US data prints on tap for later this week may sway USD/CAD as the core PCE, the Federal Reserve’s preferred gauge for inflation, is expected to hold steady at 4.7% per annum in February. Evidence of sticky price growth may generate a bullish reaction in the US Dollar as it puts pressure on the Fed to pursue a more restrictive policy, and the Federal Open Market Committee (FOMC) may implement another rate hike at the next interest rate decision on May 3 as the central bank reiterates that ‘the labor market remains extremely tight.’

Until then, speculation surrounding the US monetary policy outlook may influence USD/CAD as the Bank of Canada (BoC) adopts a wait-and-see approach, but the failed attempt to test the yearly high (1.3862) may lead to a larger pullback in the exchange rate as it appears to be on track to test the monthly low (1.3555).

With that said, failure to defend the opening range for March may instill a bearish outlook for USD/CAD, but stickiness in the core US PCE may curb the recent decline in the exchange rate as it puts pressure on the Fed to implement higher interest rates.

Canadian Dollar Price Chart – USD/CAD Daily

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

• USD/CAD appears to have reversed course following the failed attempts to test the yearly high (1.3862), with the exchange rate on track to threaten the opening range for March as it trades to a fresh weekly low (1.3560).
• Failure to defend the monthly low (1.3555) may lead to a test of the 50-Day SMA (1.3538), with the next area of interest coming in around 1.3440 (23.6% Fibonacci retracement).
• Nevertheless, the recent series of lower highs and lows may unravel if USD/CAD defends the monthly opening range, with a move back above 1.3630 (38.2% Fibonacci retracement) bringing the 1.3810 (161.8% Fibonacci extension) region back on the radar.

--- Written by David Song, Strategist

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