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Loonie Looking to Break

USDCAD has seen a solid run of demand this week, turning focus to the potential for a breakout higher in coming sessions. The pair has been stuck in a range for most of the year so far caught between support at 1.3218 and resistance at 1.3501. However, on the back of the shift in USD sentiment, we’ve seen over the last fortnight, the pair is now threatening a topside break.
 

Hawkish Fed View

Fed expectations have turned hawkish once again on the back of recent strength in key US readings, including jobs data, CPI, retail sales, and PPI. With several Fed members this week talking up the need to keep pushing with rates, the market is now expecting a more hawkish outlook from the Fed in March, with pricing for a larger .5% hike growing stronger.
 

Dovish BOC View

These hawkish expectations are at odds with the market view on the BOC which recently signaled that it will likely pause on further tightening for now to assess the impact of recent adjustments. This outlook, in line with falling oil prices, is keeping the near-term CAD outlook skewed lower, creating room for a fresh upside in the pair next week.
 

CAD CPI Next Week

Canadian CPI will be key to watch next week. If the BOC can avoid the type of inflationary uptick seen in the US, this should keep its preference for pausing intact, allowing USDCAD to appreciate further next week.
 

Technical Views

USDCAD

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The recent lows in USDCAD saw plenty of bullish divergence in momentum studies before the latest rally off the 1.3218 level. Price is now testing the 1.3501 level resistance along with the bear trend line from 2022 highs. This is a key pivot for the market and a break here will open the way for a test of 1.3683 next. Retail market is heavily short the pair, which is encouraging, and momentum studies are turning more bullish, suggesting plenty of room for a break higher here. 

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