USDCAD Falls as Risk Sentiment Improves and Resistance Holds

Author: Greg Michalowski

Date: 23 hours ago

Market Overview

The USDCAD currency pair is experiencing a downward movement as global risk sentiment improves, largely due to easing tensions in the Middle East. This shift has resulted in rising stock prices, increasing yields, declining oil prices, and a general weakening of the US dollar, all contributing to the downward pressure on the USDCAD.

Technical Analysis

From a technical standpoint, the USDCAD has retraced lower after failing to maintain momentum near a significant resistance zone between 1.37149 and 1.3724. This resistance level has been a critical barrier since mid-January. Although the price briefly exceeded this range on Friday, similar to a previous attempt on March 3, sellers quickly re-entered the market, pushing the price back down.

Initially, the pair saw a temporary rebound following a better-than-expected Canadian Consumer Price Index (CPI) report, which lifted the price from an intraday low of 1.3675 to approximately 1.3695. However, this upward movement was short-lived, and the pair has since resumed its decline.

Currently, the price is hovering around the 38.2% Fibonacci retracement level of the recent move from Thursday's low of 1.35762 to Friday's high of 1.37408, which is positioned at 1.36778. This level is now a crucial near-term pivot point. If sellers can maintain the price below 1.36778, the next target for downside movement is anticipated to be in the range of 1.3624 to 1.36305, which represents the lower boundary of a consolidation zone observed from mid-February to March 6.

Canada CPI Report

The Canadian CPI for February showed a year-over-year increase of 1.8%, which is below the expected 1.9% and a decrease from January's 2.3%. This marks the lowest inflation rate since September. On a monthly basis, the CPI rose by 0.5%, slightly under the forecast of 0.7%.

Core inflation measures also indicated a softening trend, with the CPI median and CPI trim both reported at 2.3%, below expectations. The CPI common measure decreased to 2.4% from 2.7% previously. The moderation in inflation is largely attributed to lower energy costs, particularly a 14.2% year-over-year drop in gasoline prices, and a slowdown in shelter inflation to 1.5% as rent and mortgage pressures eased.

Some of the decline in inflation figures can be linked to base-year distortions from Canada's temporary GST/HST tax holiday, which had previously inflated year-over-year comparisons. Overall, the report suggests a trend towards disinflation and progress towards the Bank of Canada's 2% inflation target, although the recent uptick in energy prices in early March may complicate future outlooks.

Key Technical Levels

• Resistance: 1.37149–1.3724 swing area
• Near-term pivot: 1.36778 (38.2% retracement)
• Next downside target: 1.3624–1.36305 consolidation support zone