As has been the case in recent months, equity markets remain the key driver for the Canadian Dollar. Therefore, with the upside in equities tentative at best and the bias very much a sell on rallies, dips in USD/CAD are likely to be supported. At the same time, USD/CAD vs rate differentials and oil prices signal that the pair is trading at fair value. Looking ahead to the near future, the economic calendar is relatively light. As such, while Canadian retail sales is on tap, this will unlikely prompt a notable move in the Loonie given that the data will not move the needle for BoC policy. As a reminder, the Bank of Canada is expected to raise interest rates by 50bps at its upcoming.

USD/CAD vs Brent Crude (Inverted)

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USD/CAD vs 5Y Rate Differentials

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Source: Refinitiv
 

USD/CAD Dips to Find Support

As we highlighted previously, USD/CAD above 1.30 was a tough area to hold above, particularly with key resistance in the form of the 200WMA. Momentum indicators have softened as of late amid the rather stagnant price action and thus we look to equity markets for direction. On the downside, support is situated at 1.2740 and below at 1.2700.

USD/CAD Chart: Weekly Time Frame

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Source: Refinitiv
 

ECB Steps up Hawkish Rhetoric

EUR/CAD: With the ECB stepping up its hawkish rhetoric, rate differentials have moved in favor of the Euro vs CAD, which in turn offers upside potential, should we see a renewed pullback in risk appetite. In turn, risks are tilted towards a test of 1.40.

EUR/CAD vs EU/CA 5Y Rate Differentials

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Source: Refinitiv