USDCAD holds steady near its monthly peak as market participants look ahead to US NFP data and updates on USMCA

Market Fundamentals Overview

US Dollar (USD) Insights

The US dollar has been fluctuating within a narrow range, influenced by ongoing global and economic uncertainties. The currency saw an uptick yesterday after initial news suggested that the third round of negotiations between the US and Iran had collapsed, with Iran reportedly dismissing US conditions. However, later updates revealed that the talks had actually advanced, and another meeting is planned for the following week, causing the dollar to relinquish its earlier gains.

The primary factors impacting the US dollar remain the potential for military tensions between the US and Iran, as well as the Federal Reserve’s future interest rate decisions. Any escalation in military conflict could drive the dollar higher due to increased risk aversion. Similarly, stronger US economic data that leads to expectations of more aggressive Fed rate hikes would also support the greenback. Fed official Waller emphasized the importance of next week’s Non-Farm Payrolls report for future policy direction.

Canadian Dollar (CAD) Update

There have been no significant changes for the Canadian dollar, as the Bank of Canada maintains a neutral stance and market participants await further developments regarding the USMCA review.

Dominic LeBlanc, Canada’s minister overseeing US-Canada trade, commented yesterday that private discussions between governments on the USMCA have been “not discouraging.” He also noted that bilateral agreements among the three countries have always existed alongside broader arrangements.

Overall, signals remain somewhat mixed but lean slightly positive. While markets are factoring in a small possibility of a rate cut by year-end, the likelihood remains low. Recent economic indicators have supported this outlook, with the labor market showing stability and core inflation staying just above the midpoint of the Bank of Canada’s 2-3% target range.

USDCAD Technical Analysis – Daily Chart

The daily chart shows USDCAD retracing to the monthly peak near 1.3725, where it has entered a consolidation phase. Sellers are expected to defend the 1.3725 resistance level and the main downward trendline, aiming for a move toward new lows. Conversely, buyers will be watching for a breakout above this area to fuel further gains toward the 1.3900 mark.

USDCAD Technical Analysis – 4-Hour Chart

On the 4-hour timeframe, recent price movements have shaped a possible head and shoulders formation near the monthly high, with the neckline positioned around 1.3650. Buyers are likely to enter near the neckline, managing risk just below it, in hopes of pushing prices to new highs. Sellers, meanwhile, will look for a breakdown below the neckline to target the 1.3500 level.

USDCAD Technical Analysis – 1-Hour Chart

The 1-hour chart offers limited new insights. Buyers may find a more favorable risk-to-reward opportunity near the neckline, while sellers are likely to wait for a decisive move below the neckline or above resistance. The red lines on the chart indicate the average daily range for today.

Key Events to Watch

To close out the week, keep an eye on the release of Canadian GDP and US PPI data. Additionally, stay alert for any new developments in US-Iran relations as the weekend approaches. For a full schedule, see the economic calendar.