USD/CAD rallies near 1.2650 post-US data as BoC Macklem speaks

• The USD/CAD recovers some ground and is positive in the week, up by 0.42%.
• BoC’s Macklem said that the Canadian economy is overheating and needs higher rates.
• USD/CAD Price Forecast: A break above 1.2700 would give control to buyers; otherwise, further downside is expected.

The USD/CAD rebounds from weekly lows at around 1.2510s and advances firmly during the North American session amidst a risk-off market mood that boosted the greenback and safe-haven currencies in the FX space. At 1.2647, the USD/CAD records gains of 0.71% at the time of writing.

Elevated US Treasury yields, a buoyant US dollar, and falling oil prices weigh on the CAD

On Thursday, the USD/CAD is pushing upwards, spurred by higher US Treasury yields. The 10-year benchmark note sits at 3.055%, up by two basis points, and underpins the buck. The US Dollar Index, a gauge of the greenback’s value, sits at 102.977, gaining almost 0.50%, a tailwind for the USD/CAD.

Falling crude oil prices also weigh on the Loonie. Western Texas Intermediate (WTI), the US crude oil benchmark, is at $121.83 per barrel, losing 0.27%.

Meanwhile, US economic data showed that Jobless Claims for the week ending on June 4 rose to 229K, higher than the 210K expected. Sources cited by Bloomberg said, “However, while we think labor markets are still currently quite tight, we can’t totally dismiss the notion that the rise in claims is a sign of a modest rise in layoffs.”

In the meantime, the Bank of Canada (BoC) Governor Tiff Macklem is crossing wires. When asked if households could handle a larger than 50 bps increase, he said the bank needs to take a larger step. He added that the chances of rates going above 3% have risen, meaning that the BoC would need more or bigger rate increases.

Macklem added that the Canadian economy is overheating and needs higher rates.

On Friday, the Canadian economic docket will reveal employment data. At the same time, the US calendar will announce US inflationary figures, with the Consumer Price Index (CPI) expected to rise to 8.3%. Excluding volatile items, ais expected at 5.2%. Also, later in the day, the UoM Consumer Sentiment will shed some light on how households feel about the US economy, alongside inflation expectations for five years.

USD/CAD Price Forecast: Technical outlook

The USD/CAD is neutral-downward biased, despite the two-day rally of almost 130 pips. The thesis is reinforced by the Relative Strength Index (RSI), at 45.18, is aiming higher, but unless it crosses bullish territory, it might shift downwards. Additionally, if the daily moving averages (DMAs) remain above the exchange rate, that would favor sellers, giving them better price entries.

If the USD/CAD is to shift to a neutral bias, buyers need to lift the pair to move above the 1.2658-1.2700 confluence of the 200 and the 100-DMA. Once cleared, that would pave the way for further gains. Otherwise, the USD/CAD first support would be 1.2600. Break below would expose the June 8 swing low at 1.2517, followed by the June 25 swing low at 1.2458.