April’s surprising rise in CPI data has changed expectations for a rate cut by the Bank of Canada in June. This shift affects the interest rate gap between the US and Canada. As a result, the Canadian dollar has strengthened against a weaker US dollar, with the spot rate estimated to be fairly valued at 1.3868. The tighter interest rate spreads may spark interest in selling USD near the 1.40 mark. Finance Minister Champagne and BoC Governor Macklem will speak at the conclusion of the G7 meeting. The spot rate has faced strong resistance above 1.40 in May, and if it drops below 1.3895/00, it could further decline toward the 1.3750/1.38 range.

Bearish Momentum and Resistance Levels

Bearish signals suggest a possible decline for the USD. Initial resistance is at 1.3910/15, with stronger resistance at 1.4025, which aligns with the 200-day moving average and recent highs. Please remember that this information is not a trading recommendation and should be verified independently. April’s increase in consumer price index data was surprising, affecting the likelihood of a June rate cut by the Bank of Canada. This change has narrowed the interest rate gap between Canada and the US, helping the Canadian dollar strengthen, especially as the US dollar has weakened. The estimated fair value for USD/CAD is around 1.3868, which serves as a benchmark for evaluating whether the spot rate is trading at a premium or discount. This helps us understand overall market sentiment. In the short term, traders should be aware of potential increased selling of USD as the rate approaches 1.40. This level has acted as resistance several times in May. For the USD to break through, a strong reason would be needed; otherwise, it may face selling pressure as it nears 1.40.

Support Levels and Policy Speeches

Support appears stronger around the 1.3895/1.3900 area. If this support fails, we could see a move into the 1.3750–1.3800 range, especially with current bearish momentum indicators suggesting a weakening USD. We should pay close attention to speeches from key policymakers, like Champagne and Macklem. While they may aim to reassure the market, their comments can sometimes shift market psychology and inform future expectations, particularly at the end of the G7 meeting. Keep a lookout for resistance at 1.3910/15, with more significant resistance at 1.4025. This level is crucial because it also coincides with the 200-day moving average and previous highs. Failure to convincingly break through 1.4025 would reinforce the current trading range. We are monitoring how consistently the Canadian dollar finds buyers near the lower end of this range. A sustained drop below 1.3895, followed by continued selling, might indicate that USD positioning was too optimistic. Create your live VT Markets account and start trading now.

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