USD/CAD Outlook: Pair Holds Steady on a Public Holiday

• The unexpected decline in US producer prices led to a decline in Treasury yields.

• There is a 78% chance of the US central bank starting rate cuts in March.

• The currency experienced a 0.2% increase last week, marking its second consecutive weekly gain.

Monday’s USD/CAD outlook displayed a hint of optimism, yet the pair remained largely flat amid subdued trading activity in the US owing to a public holiday. Concurrently, investors continued assessing Friday’s data, revealing an unexpected easing in US producer prices.

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The likelihood of Fed cuts this year, potentially starting in March, increased after Friday’s data. The unexpected decline in US producer prices led to a decline in Treasury yields. Last month, the producer price index for final demand decreased by 0.1%. 

Market pricing now indicates a 78% chance of the US central bank starting rate cuts in March, up from 68% a week ago, based on the CME FedWatch tool.

Meanwhile, on Friday, the Canadian dollar showed little movement against the US dollar as oil retraced much of its earlier gains. Oil fell from its earlier two-week high following US and British strikes on Houthi targets in Yemen. Still, it closed up 0.9%.

Additionally, the currency experienced a 0.2% increase last week, marking its second consecutive weekly gain. It reached a four-week high on Thursday at 1.3442, influenced by higher-than-expected US inflation data that momentarily reduced expectations for the Fed to consider interest rate cuts in March. 

Elsewhere, according to economists, Canada’s December inflation report on Tuesday will likely show an increase from 3.1% to 3.3%.

USD/CAD key events today

Neither the US nor Canada will release high-impact reports today, which might lead to consolidation for the pair.

USD/CAD technical outlook: Price achieves new highs while anchored at 1.3350

On the technical side, the USD/CAD price is making new highs but maintaining the same low at 1.3350. This is a sign that, although bulls are in control, bears are challenging the uptrend. As a result, the price is now chopping through the 30-SMA.

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Moreover, the RSI has made lower highs amid the uptrend, indicating weakening bullish momentum. Recently, bulls pushed off the 1.3350 support level with an engulfing candle. If bulls regain momentum, the price will likely climb to the 1.3501 resistance level. Otherwise, bears might finally breach the 1.3350 support.

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• Source: https://www.forexcrunch.com/blog/2024/01/15/usd-cad-outlook-pair-holds-steady-on-a-public-holiday/