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On Tuesday, the USD/CAD exchange rate traded within its current four-day range, attempting to break through the key round level of 1.4000. Markets are adopting a wait-and-see stance ahead of the Federal Reserve meeting, at which monetary policy will be discussed.
The pair shows a bullish trend amid persistent weakness in the Canadian dollar. Oil prices remain under pressure as investors welcome the diplomatic progress between Washington and Tehran.
According to the Swiss Ministry of Foreign Affairs, the signing of a memorandum of understanding between the US and Iran is scheduled for Friday in Burgenstock, Switzerland. This event heightens hopes for stable global energy flows and contributed to the recent decline in oil prices.
The drop in oil prices remains a negative factor for the Canadian dollar, as Canada's economy relies heavily on potential energy exports. This situation has intensified pressure on the Canadian dollar in recent days, as investors closely monitor the country's economic outlook and potential developments in the Bank of Canada's monetary policy.
In the US, the dollar remains stable amid anticipation of the Fed meeting. Overall, investors expect rates to remain unchanged; however, attention is focused on revisions to economic forecasts and the updated dot plot. Market participants are looking for signs that the recent rise in energy prices and higher inflation will lead to a more hawkish stance from the Fed on interest rates.
Meanwhile, fresh economic data from the US continues to show signs of a slowing labor market. According to the ADP employment report, the four-week average indicates that private employers created 25,500 jobs, down from the previous level of 29,000, confirming a gradual decline in hiring activity.
Additionally, the previously observed increase in energy prices has contributed to rising inflation in the US. The consumer price index (CPI) year-on-year rose to 4.2% in May, reaching its highest level since April 2023. However, recent positive changes in relations between the US and Iran have helped reduce oil prices, which may weaken inflationary pressure in the medium term.
Thus, the combination of a stable US dollar ahead of the Fed meeting and the pressure on the Canadian dollar from falling oil prices keeps the USD/CAD rate at recent highs. Investors will be attentive to the Fed's updated economic forecasts and monitor the directional movement of this currency pair.
From a technical perspective, the pair is trading above important moving averages, confirming a bullish sentiment. However, the relative strength index is in the overbought zone, suggesting a potential correction. But as the oscillators remain positive, the bulls have the advantage. The resistance level is the round figure of 1.4000, while support is provided by the 9-day EMA. The table below shows the percentage change in the Canadian dollar against major currencies traded on Tuesday. The Canadian dollar has shown the greatest strength against the Japanese yen.
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