Fundamental Overview
The main culprit for the US Dollar strength lately has been the rally in long term Treasury yields. The yield curve has been bear-flattening which is what you would expect with higher growth and potentially higher inflation expectations.
There’s a good argument that the markets have been already positioning for a Trump’s victory which is expected to strengthen the higher growth and less rate cuts expectations.
As previously mentioned, this is the trend for now and it’s generally a bad idea to fight such trends without a strong catalyst. The US Dollar will likely remain supported unless Harris wins the US elections and we get a correction in Treasury yields.
On the CAD side, the BoC cut interest rates by 50 bps as expected recently and signalled more rate cuts to come with the size of the cuts being guided by incoming data. The market sees a 90% probability of a 25 bps cut in December (10% for a 50 bps cut) and then three more 25 bps cuts in 2025.
USDCAD Technical Analysis – Daily Timeframe
On the daily chart, we can see that USDCAD extended the rally into the 1.39 handle as it continues to approach the 2-year high at 1.3977. At this point the market might need to see the US election result to break the 2-year high but the momentum is still favourable for the greenback.
USDCAD Technical Analysis – 4 hour Timeframe
On the 4 hour chart, we can see that we have a minor upward trendline defining the current bullish momentum. The buyers will likely lean on it to position for a rally into a new high, while the sellers will look for a break lower to start targeting the 1.38 handle.
USDCAD Technical Analysis – 1 hour Timeframe
On the 1 hour chart, we can see that we now have a counter-trendline defining the current pullback. The buyers will want to see the price breaking higher to increase the bullish bets into new highs, while the sellers will likely lean on to ride the pullback into the major trendline. The red lines define the average daily range for today.
Upcoming Catalysts
Today we have the US Job Openings and the US Consumer Confidence report. Tomorrow, we get the US ADP and the US GDP. On Thursday, we have the US PCE, the US Jobless Claims, the US Employment Cost Index and the Canadian GDP data. Finally, on Friday, we conclude the week with the US NFP and the US ISM Manufacturing PMI.
