The USDCAD is at risk of slipping under downward pressure. The USD/CAD pair is currently struggling to remain above the immediate support of 1.3140. This is a consequence of the risk-off stand and elevated interest rates from the Federal Reserve, which weigh on the pair. The US Dollar Index has dropped to its day’s low, adding to the downward pressure on the USDCAD pair.
US Treasury yields have also dropped, with 10-year US government bond yields falling to near 3.690%. The upcoming US Durable Goods Orders data (May) is expected to contract by 1.0%, with Durable Goods Orders, leaving out security, expected to remain stagnant.
This lack of growth in the durable goods sector could continue to pressure the USD/CAD pair, as it might indicate a weakening in the US economy. This could lead to a further drop in the US Dollar Index, which would further weaken the pair in the near term.
BOC Plan to Maintain Monetary Policy
The Canadian dollar is showing a remarkable amount of resilience ahead of the scheduled May release of the Consumer Price Index (CPI) data. According to the latest estimates, monthly inflation is expected to be at 0.5%, while annualized inflation is likely to soften to 3.4%. Core inflation is also projected to decelerate to 3.7%. Given the expected softening of annualized inflation, it is expected that the Bank of Canada (BoC) will maintain its current monetary policy.
However, investors should remain cautious as the upcoming quarterly results season could potentially bring further interest rate hikes. The Canadian dollar is expected to remain strong in the short term but may be subject to further volatility if the BoC decides to raise interest rates. In the meantime, investors should monitor the CPI data and the quarterly results season closely for any potential changes in the market.
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