Canadian Dollar Slides as US Dollar Surges, Fed Outlook Shifts

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The Canadian Dollar (CAD) is experiencing a three-day sell-off, poised for its worst weekly performance in nearly a year. The US Dollar (USD) is rallying on higher US yields as markets reassess the timing and scale of Federal Reserve (Fed) easing.

Factors Fueling USD Strength

  • Deteriorating Michigan Consumer Sentiment Index, though rising consumer inflation expectations, failed to dampen USD sentiment.
  • Dovish ECB monetary policy statement further bolsters the USD.
  • Boston Fed President Susan Collins hints at September for the start of rate cuts, signaling a potential delay and fewer cuts in 2024.

Market Movers and Outlook

  • CAD’s weekly decline on track to be the worst since May 2023.
  • University of Michigan sentiment data highlights weakening consumer sentiment but rising inflation expectations.
  • US 10-year yields remain elevated near 4.5%, supporting USD.
  • Market expectations for Fed rate cuts in 2024 have been scaled back significantly.
  • Additional speeches from hawkish Fed officials could offer further USD support.

Technical Outlook: USD/CAD Bullish, Eyes Further Upside

The USD/CAD pair exhibits strong bullish momentum following a decisive break above a two-month channel. Overbought conditions exist but are not extreme. Key targets include:

  • 1.3770 resistance
  • Mid-November high of 1.3845 (measured target of broken channel)

Support Levels:

  • 1.3680-1.3660
  • 1.3545

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