The USD/CAD currency pair has witnessed a pullback during the Asian session on Wednesday. Despite this, it remains close to the multi-year top reached just the day before and seems to have limited downside potential.
Traders are currently in a wait-and-see mode as they eagerly anticipate the release of US consumer inflation figures and the Bank of Canada’s (BoC) policy decision before making fresh directional bets. As things stand, spot prices are trading just above the mid-1.4100s, having declined by less than 0.10% for the day.
One factor influencing the pair is the rise in crude oil prices. The Canadian Dollar, often referred to as the Loonie due to its link with commodities, appears to be getting support from the upward movement in oil prices. This, in turn, is exerting some pressure on the USD/CAD pair. However, the market’s expectations regarding a potentially larger rate cut by the BoC are causing traders to hold back from making overly aggressive bullish bets on the Canadian Dollar.
At the same time, the growing belief that the Federal Reserve (Fed) will approach interest rate cuts with caution has helped the US Dollar maintain the gains it has achieved over the past three days. This acts as a favorable factor for the USD/CAD pair.
From a technical analysis perspective, the recent sustained breakout and acceptance above the 1.4100 mark had been a significant trigger for bullish traders. The oscillators on the daily chart are comfortably in positive territory and are still some distance away from entering the overbought zone. This indicates that the path of least resistance for the USD/CAD pair is still upwards. As a result, any further decline in price could be viewed as a buying opportunity, with the downside likely to be limited around the 1.4100 mark, which now serves as a crucial pivot point.
Should there be continued selling that leads to prices dropping below the 1.4070 support zone, it could prompt some long-unwinding trades. This would then drag the USD/CAD pair down to the 1.4020 area and potentially towards the significant 1.4000 psychological mark. The corrective pullback might even extend further to the next relevant support in the 1.3960 – 1.3950 area and then towards the November 25 low around the 1.3925 region.
On the upside, the 1.4200 mark is likely to act as an immediate resistance. If the pair manages to break above this level, it could surpass an intermediate hurdle near the 1.4260 area and then test the April 2020 swing high, which is around the 1.4300 round figure. Ultimately, spot prices could climb to the 1.4335 – 1.4340 region.
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