• The Canadian dollar fell on interest rate differentials and lower oil prices.
• The Ivey PMI revealed that economic activity in Canada expanded faster in April.
• American Petroleum Institute data revealed a jump in US crude inventories last week.

The USD/CAD price analysis shows a soaring bullish sentiment as the Canadian dollar slides on interest rate differentials and lower oil prices. This week, the currency has weakened significantly, with economists warning that policy outlook divergence will continue to weigh on the loonie.

The Canadian dollar fell despite data on Tuesday showing an improvement in economic activity in April. The Ivey PMI revealed that economic activity in Canada expanded faster in April, with the index rising to 63.0 from 57.5 in March. However, this was not enough to lift the loonie since markets are confident that the Bank of Canada will cut rates at its June 5 meeting. Meanwhile, the Federal Reserve will start much later in September or November. This makes the dollar more appealing for investors as US rates will remain high for longer.

At the same time, the Canadian dollar fell with oil prices. The decline in oil came after American Petroleum Institute data revealed a jump in US crude inventories last week. This is a sign of weak demand in the US. A drop in oil negatively impacts the Canadian dollar since Canada is a significant oil exporter.

Investors are now awaiting Canada’s employment figures to get more clues on the rate cut outlook. More economic deterioration would solidify bets for June’s cut as it would pressure the Bank of Canada to lower borrowing costs.

USD/CAD key events today

Market participants are not expecting any key economic releases from Canada or the US. Therefore, the pair might continue in its current move.

USD/CAD technical price analysis: Bulls take the lead after a false breakout

On the technical side, the USD/CAD price has broken back above its trendline, and the 30-SMA shows bulls have taken the lead. This also indicates that the recent move below the trendline was a false breakout. Bulls showed their intention to take control when the price made a bullish, engulfing candle at the 1.3650 key level.

The price now sits well above the SMA, with the RSI near the overbought region, indicating a bullish bias. Bulls are targeting the 1.3800 critical resistance level. A break above this level would make a higher high, strengthening the bullish bias.

https://www.forexcrunch.com/blog/2024/05/08/usd-cad-price-analysis-policy-divergence-weighs-on-loonie/