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Monetary Factors Support the Canadian Currency

2/28/2023 1:47 PM

The USD/CAD pair is moving within a short-term upward trend: the quotes opened this week with a correction to the 1.3530 area but now they are regaining their lost positions.

Fundamental factors contribute to the strengthening of the US currency. On Friday, the January data on the price index of personal consumption expenditures was released: the indicator increased from 5.3% to 5.4% YoY, and the core value – from 4.6% to 4.7%. Thus, signs of further inflation growth are growing again, strengthening the confidence of experts that the US Federal Reserve will maintain its hawkish rhetoric, while one of the next interest rate hikes may be not 25.0 bps but 50.0 bps, supporting the US dollar relative to other competitors. In the meantime, tightening monetary policy increases the risks of a downturn in the national economy, threatening to reduce trade with Canada. It will put additional pressure on the Canadian currency, which is showing weakness against the backdrop of macroeconomic statistics: for example, the current account deficit increased from 8.4B Canadian dollars to 10.6B Canadian dollars yesterday, and the country's state budget deficit for the first nine months of 2022–2023 financial year amounted to 5.54B Canadian dollars. Today, investors expect the publication of data on the gross domestic product (GDP) in the fourth quarter of last year, which, as experts suggest, will fall to 1.5%.

The trading instrument is close to 1.3610 (Murrey level [7/8]), consolidation above which allows further growth to 1.3672 (Murrey level [8/8]) and 1.3732 (Murrey level [+1/8]). The key “bearish” level is 1.3427 (Murrey level [4/8], the middle line of Bollinger bands), after the breakdown the decline will resume to 1.3305 (Murrey level [2/8]) and 1.3244 (Murrey level [1/8]).

Technical indicators point to the continuation of the upward trend: Bollinger bands are directed upwards, the MACD histogram is increasing in the positive zone, and the downward reversal of Stochastic does not exclude a price rollback to the 1.3488 area (Murrey level [5/8]) but it is unlikely to lead to a change in the trend.

Resistance levels: 1.3610, 1.3672, 1.3732. | Support levels: 1.3427, 1.3305, 1.3244.

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