USD/CAD bears in control and target lower levels in support area

• USD/CAD bears are in control as oil price rallies and US Dollar stays soft.
• Canadian inflation expectations still provide a very high bar for near-term easing.

USD/CAD is flat on the day following a series of bearish impulses that has forced the price into fresh territories to the downside and deeper into a support area owing to the rally in the oil price. At the time of writing, USD/CAD is trading at 1.3431.

CAD was supported by West Texas Intermediate WTI crude oil that rose 6.3% on Monday to a high of the day at $81.51. The rally in the oil price came after the OPEC+ cartel surprised the market with a 1.1-million barrel per day cut to production to support prices with the cartel saying it will reduce output ahead of the group's ministerial meeting scheduled for Monday.

Domestically, the focus was on the Bank of Canada's Business/Consumer Surveys that painted a more dovish backdrop heading into the April BoC meeting, with a substantial improvement in capacity pressures and consumer inflation expectations, analysts at TD Securities said.

´´Firm-level inflation expectations remain elevated and consumer expectations for growth and income also ticked higher from Q4,´´ the analysts noted.

´´The BoC should be pleased with these results as they speak to weaker capacity pressures and moderating inflation pressures, but inflation expectations still provide a very high bar for near-term easing. The economy has also shown signs of a rebound in Q1, so if growth does not slow sharply in Q2 then the Bank of Canada may find it difficult to keep rates at 4.50%.´´ The analysts concluded that the report is bullish for CAD.

USD/CAD weekly chart

This leaves scope for more downside in USD/CAD and technically, the outlook is also bearish. While the M-formation could be deemed as a meanwhile bullish pattern, there is room for further downside, both near term and medium term. 

USD/CAD daily chart

The daily chart shows the price moving strongly into support which gives rise to prospects of more to come before a correction is due.