USDCAD has been on the decline since the start of the year, but this might merely be a pullback from the longer-term climb. Price is testing the 50% Fibonacci retracement level and might still be due for a deeper correction to the 61.8% Fib or the bottom of the channel.
Price is in the middle of an ascending channel visible on the daily time frame, and support lines up with the 200 SMA dynamic inflection point as well. The 100 SMA is above this longer-term 200 SMA to confirm that the path of least resistance is to the upside. In other words, there’s a stronger chance for the uptrend to resume than to reverse.
RSI is also indicating oversold conditions or that sellers are exhausted and may let buyers take over. Stochastic is in the oversold region as well and may pull back up to signal a return in bullish momentum. In that case, support levels could hold and take price back up to the swing high around the 1.3700 mark or higher.
The Loonie drew support from a mostly upbeat BOC decision as the central bank indicated scope for further hikes even with weaker crude oil prices. Meanwhile, the dollar is on weaker footing on account of lower expectations of more rate hikes from the Fed later this year.
There’s also the US government shutdown to contend with and at some point, this could wind up hurting overall economic growth. Expectations for the mid-level trade talks between the US and China last week also proved more bullish for commodities than the dollar itself.
Looking ahead, risk sentiment might be the primary driving force of this pair’s price action in the absence of top-tier catalysts from both the US and Canada. Factors that could shape this could have to do with more trade updates and developments pertaining to Brexit.