- The flash US composite output index jumped from 51.3 to 54.4.
- Inflation in Canada hit a three-year low of 2.7%.
- The prospect of higher rates in the United States weighed on oil.
The outlook for USD/CAD is pointing north as the pair is holding close to a two-week high due to a widening policy gap between the US and Canada. At the same time, the Canadian dollar was weak due to falling oil prices.
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The difference in policy outlook between the Fed and the Bank of Canada was highlighted on Thursday when the US released upbeat PMI data. Business activity improved significantly in May. Notably, the fast-moving US composite manufacturing index jumped from 51.3 to 54.4, leading to a decline in Fed rate cut expectations. If the economy is doing so well, demand is still strong, which could lead to further delays in rate cuts.
Minutes from the FOMC’s recent policy meeting revealed that some policymakers were poised to raise interest rates if inflation remained stubborn. Therefore, any signs of strong demand that could fuel inflation raise uncertainty about future policy moves.
Meanwhile, the situation in Canada is different as inflation hit a three-year low of 2.7%, increasing bets that the Bank of Canada will cut rates in June. Moreover, experts said there could be three cuts in Canada before the Fed begins its rate-cutting cycle. Therefore, the longer it takes for the Fed to kick in, the more the Canadian dollar will weaken.
Elsewhere, oil prices have fallen, putting more pressure on the madman. The prospect of longer US rates is bearish for oil prices. Therefore, the positive PMI data also affected oil.
USD/CAD Key Events Today
- University of Michigan Consumer Sentiment Revised
USD/CAD Technical Outlook: Bulls breakout
On the technical side, the USD/CAD price made a bold, bullish move by breaking above a solid resistance trend line. The bullish bias has strengthened as the price is well above the 30-SMA and the RSI is near the overbought region.
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A break above the trendline indicates a solid change in sentiment to the bullish side. However, the price must break above the resistance at 1.3750 to confirm a new bullish trend to make a higher high. This would allow it to retest the 1.3800 level. However, the price could pull back to retest the recently broken trend line before going higher.
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