• USD/CAD is putting efforts to shift the business above 1.3520 amid anxiety ahead of US Inflation.
• Federal Reserve is likely to consider one more rate hike in May amid tight labor market conditions.
• Bank of Canada would keep rates steady as Canada’s inflation is softening meaningfully.
• USD/CAD is auctioning in a Rising Channel, however, the upside momentum looks weak.

USD/CAD is making efforts in shifting business above the immediate resistance of 1.3520 in the Asian session. The Loonie asset is gaining traction as investors are awaiting the release of the United States inflation figures and the interest rate decision by the Bank of Canada (BoC), which will release on Wednesday.

S&P500 futures have turned negative after surrendering opening gains as geopolitical tension between China and Taiwan has underpinned the risk aversion theme. Also, investors are cautionary for US equities as the quarterly result season will kick off sooner. 

Meanwhile, the US Dollar Index (DXY) is continuously refreshing day’s high as tight US labor market conditions have strengthened hopes of more rate hikes from the Federal Reserve (Fed). The USD Index has printed a high of 102.25. The US Treasury yields are showing a subdued performance despite rising odds of a hawkish Federal Reserve policy for May.

Federal Reserve to raise rates further as Unemployment Rate remains lower

Friday’s US Employment data has confirmed that higher rates by the Federal Reserve and tight credit conditions by commercial banks after the collapse of Silicon Valley Bank (SVB) and Signature Bank had a minimal impact on the US labor market. In March, the US economy added fresh 236K, marginally lower than the consensus of 240K but significantly lower than the former release of 326K. The Unemployment Rate dropped further to 3.5% from the consensus and the prior release of 3.6%.

Less impact of higher rates on the US labor market has strengthened the need for more hikes to arrest the stubborn US inflation. According to money market expectations, 64% of investors are supporting more rate hikes from the Federal Reserve.

US Inflation to provide clarity on Federal Reserve’s interest rate guidance

After the US Nonfarm Payrolls (NFP) data, investors are sticking to Consumer Price Index (CPI) data, which will provide extensive clarity on interest rate guidance. As per the consensus, the headline inflation will soften to 5.2% from the former release of 6.0%. Also, monthly headline CPI would decelerate to 0.3% from 0.4% reported earlier. Oil prices remained lower in March and its effect is expected to get visible in inflationary pressures.

However, the upward-rising US labor cost index due to a shortage of labor is keeping demand for core goods resilient. This might force Federal Reserve chair Jerome Powell to put the last nail in the coffin by pushing rates above 5% to intermediate pivotal.

Bank of Canada to keep rates unchanged

This week, the Canadian Dollar will dance to the tunes of the interest rate decision by the Bank of Canada. A continuation of a neutral policy stance is expected from Bank of Canada Governor Tiff Macklem as Canada’s inflation is softening consecutively. The inflation rate has already decelerated to 5.2% in February as the Bank of Canada monetary policy is restricted enough to tame inflationary pressures.

Last week, Canada’s employment data remained extremely tight. Demand for labor crossed expectations significantly and the Unemployment Rate was trimmed further to 5%. This could put some pressure on the Bank of Canada for reconsidering policy stance.

USD/CAD technical outlook

USD/CAD is auctioning in a Rising Channel chart pattern on an hourly scale in which corrections are considered buying opportunities by the market participants. However, the upside momentum looks weak amid an absence of any perpendicular move by the US Dollar.

The Relative Strength Index (RSI) (14) has been failing in climbing above the 60.00 level decisively, indicating missing upside momentum in the Loonie asset.

However, the 20-period Exponential Moving Average (EMA) at 1.3509 is continuously providing cushion to the US Dollar.