The Canadian dollar showed signs of resilience on Tuesday as oil prices surged, triggering a slight recovery in its value. This shift in momentum for the loonie comes in the wake of heightened optimism regarding the demand outlook for oil, fueled by positive manufacturing data from the US and China.
On Monday, however, the Canadian dollar experienced a setback following a discouraging survey conducted by the Bank of Canada (BoC). The survey’s results painted a picture of subdued demand expectations among Canadian companies for the upcoming year, raising concerns about the nation’s economic outlook. Coupled with easing inflationary pressures, this has intensified pressure on the BoC to consider interest rate cuts.
In contrast, there were modest signs of improvement in Canadian manufacturing activity in March, although the sector remained marginally below the expansion threshold. Meanwhile, across the border, the US manufacturing sector witnessed a notable turnaround, with the latest data indicating a significant improvement. The ISM manufacturing Purchasing Managers’ Index (PMI) rose from 47.8 in February to 50.3 in March, signaling a transition from contraction to expansion.
Given that manufacturing contributes approximately 10% to the US economy, this resurgence in the sector is indicative of a robust and resilient economy. Consequently, expectations for interest rate cuts in the US diminished, bolstering the dollar’s strength.
From a technical standpoint, the USD/CAD price dynamics indicate a potential shift in momentum, with bears attempting to reverse recent bullish trends. Initially, bears exerted pressure, driving the price towards the 0.618 Fibonacci retracement level. However, their attempts to breach this level were thwarted, allowing bulls to regain control.
Despite the challenge posed by bears, the overall bullish bias remains evident, with the Relative Strength Index (RSI) holding above 50. Should the 30-day Simple Moving Average (SMA) continue to serve as a support level, the price is poised to retest the resistance at 1.3600. However, a breach of the SMA by bears would likely lead to a retest of the support level at 1.3515, signaling a shift towards a bearish bias in the market.
