• USD/CAD is testing the strength of the breakout above the downward-sloping trendline from 1.3520.
• Investors have underpinned the risk aversion theme ahead of the Fed’s monetary policy.
• A bullish range shift by the RSI (14) indicates that the upside momentum is active.

The USD/CAD pair has turned sideways after a juggernaut rally near 1.3400 in the early Asian session. A sheer drop in investors’ risk appetite amid rising volatility ahead of the interest rate decision by the Federal Reserve (Fed) strengthened the US Dollar.

The US Dollar Index (DXY) has delivered a confident breakout above the crucial resistance of 101.80 amid the risk-aversion theme. Also, the 10-year US Treasury yields moved above 3.54% on expectations of a further hike in the interest rates.

USD/CAD delivered a stalwart rally after forming a volatility divergence on an hourly chart. The Loonie asset tested January 26 low at 1.3300 with less volatility on January 27 as the asset remained inside the Bollinger Bands. After demonstrating signs of a bullish reversal, the major rode the rally with the upper Bollinger Band to near 1.3390.

The US Dollar has pushed the asset above the downward-sloping trendline plotted from January 19 high at 1.3520 and is now testing the waters before resuming the upside trend.

Meanwhile, the Relative Strength Index (RSI) (14) has shifted into the bullish range of 60.00-80.00, which indicates that the upside momentum is active.

Should the asset break above January 26 high at 1.3408, US Dollar bulls will drive the asset toward January 19 low at 1.3446 followed by January 19 high at 1.3521.

On the contrary, a break below January 30 low at 1.3300 will drag the Loonie asset toward a fresh 10-week low around 1.3226. A slippage below the latter will further drag the asset toward Septermber 1 high around 1.3300.

USD/CAD hourly chart