USD/CAD marches firmly to fresh multi-week highs around 1.2960s, ahead of FOMC, US Retail Sales

• The USD/CAD is gaining close to 1.50% during the week.
• Investors’ sentiment shifted sour on expectations of a higher than estimated FOMC rate hike; global equities fall.
• USD/CAD Price Forecast: The pair is upward biased, and a break above 1.3000 opens the door for a challenge of the YTD high at 1.3076.

The USD/CAD marches firmly and is reaching a new four-week high, extending its gains for the fifth consecutive day, with investors worried that the Federal Reserve might trigger the US economy into a recession as they tighten monetary policy to abate inflation. The USD/CAD is trading at 1.2962 at the time of writing, up by 0.49%.

Global equities remain under pressure, reflecting a dampened market mood. Consequently, demand for the greenback rose due to its safe-haven status. Reflection of that is the US Dollar Index, a basket of the performance of six currencies vs. the buck, advancing 0.15%, sitting at 105.360.

The USD/CAD remains upward pressured for the reason mentioned above. The US economic calendar reported prices paid by producers, which rose by 10.8% YoY, in line with estimations, triggering no action as traders’ focus is on the Fed. The CME FedWatch Tool reports that investors have priced in a 93.2% chance of a US Federal Reserve 0.75% rate hike in the June meeting.

Meanwhile, oil prices drop for the first time in the week. Western Texas Intermediate (WTI), the US crude oil benchmark, falls more than 1%, exchanging hands at $119.64 per barrel, a tailwind for the USD/CAD.

Data-wise, the Canadian economic docket reported factory sales, which climbed 1-7% in April, with sales volumes up 0.9%, adding evidence of firm economic activity in the second quarter.

In the week ahead, the Canadian economic docket will feature Housing Starts on Wednesday, estimated at 252.6K. On the US front, May’s Retail Sales are estimated to grow by 0.2% MoM, alongside the highlight of the week, the US Federal Reserve Open Market Committee (FOMC) interest rates decision.

USD/CAD Price Forecast: Technical outlook

The USD/CAD fourth-day rally lifted the major from 1.2550 to 1.2960s. After being above the exchange rate, the daily moving averages (DMAs) shifted the USD/CAD bias upwards during a high-volatility three-day trading session. The RSI is aiming higher, though shy of reaching overbought conditions, opening the door for further gains.

Therefore, the USD/CAD first resistance would be the 1.3000 mark. Break above would expose the YTD high at 1.3076, followed by November 13, 2020 swing high at 1.3172.

Key Technical Levels