USD/CAD trims post-Fed losses and eyes 1.2900 amid a dismal mood

• Risk-aversion keeps the greenback buoyant, recovering Wednesday’s losses.
• Fed’s Chair Powell pushed back against 75-bps raises but kept 50-bps “on the table.”
• USD/CAD Price Forecast: Remains upward biased, as USD/CAD bears failed to reclaim 1.2800.

The USD/CAD trims Wednesday’s losses and is approaching March’s 15 daily highs around 1.2871 after the Federal Reserve raised interest rates by 0.50% for the first time in 22 years. At the time of writing, the USD/CAD is trading at 1.2859.

The market sentiment is dismal, as US equities are trading in the red, posting losses between 2.65% and 4.46%. The greenback is poised to test the 104.000 mark, up 1.21% during the day, while the US 10-year Treasury yield rose to 3.086%, gaining 14 basis points, underpinning the USD/CAD pair.

The Federal Reserve May meeting left traders with a 50-bps increase in the Federal Funds Rate (FFR). Also, the US central bank announced that it would reduce its $8.9 trillion balance sheet on June 1 by $47.5 billion, $30 billion of US Treasuries, and $17.5 billion of mortgage-backed securities (MBS).

Meanwhile, in his press conference, Fed Chair Jerome Powell pushed back against 75-bps increases but would not discount 50-bps hikes in a couple of more meetings. Money market futures odds of another 50-bps raise in June are 100%. However, the chances of a 75-bps hike lie at 71%, reflected by the jump on the US 10-year benchmark note.

On Thursday, the US economic docket featured Initial Jobless Claims for the week ending on April 29, which increased to 200K from 182K foreseen by analysts. The report notes that labor costs surged to 11.6%, showing the tightness of the job market.

In the week ahead, the Canadian docket will feature Canadian employment figures. Analysts at TD Securities wrote in a note that they expect another 40K jobs to be added to the economy. Furthermore, they noted that “services should account for the bulk of newly created jobs, alongside a mixed performance for the goods-producing sector. We also look for wage growth to hold at 3.7% y/y as tight labor market conditions help offset a large base-effect.”

On the US front, the US Nonfarm Payrolls report for April is estimated that 391K jobs were added to the economy, though lower than the previous 431K reached.

USD/CAD Price Forecast: Technical outlook

The USD/CAD dipped towards April’s 29 swing lows around  1.2718 post-Federal Reserve decision on Wednesday. However, a shift in market sentiment, alongside technical support in the level mentioned above, spurred a jump from weekly lows towards the March 15 swing high around 1.2871. Additionally, the Relative Strength Index (RSI) shifted gears and is aiming higher, at 60.99, with enough room if the USD/CAD prints another leg-up.

With that said, the USD/CAD first resistance would be 1.2871. Break above would expose 1.2900, followed by the YTD high at 1.2913 and then the December 20 cycle high at 1.2964.