USD/CAD Stabilized Near Highs on Disappointing US GDP Report

Key Insights

• Gold prices fell on a stronger dollar. 
• Treasury yields surged higher despite surprising GDP report.
• Oil prices were mixed in volatile trading amid global supply shortages and China demand concerns.

USD/CAD remained little changed as the dismal US GDP report capped gains for the dollar. The dollar hit two-decade highs. Treasury yields extended gains although unexpected economic data pointed toward an economic slowdown. The 10-year yield was up four basis points at 2.85%.

Gold prices slid to two-month lows on a stronger dollar but recovered later in the trading session. Oil prices stabilized after volatile trading as investors weighed the tightening of the Russian oil supply and the potential of slowing demand in China. A stronger dollar undermines oil prices.

US Gross Domestic Product (GDP) surprisingly declined at a 1.4% pace in the first quarter. Analysts expected that GDP would increase by 1%. GDP measures the output of goods and services in the US for the three-month quarter.

Although consumer expenditures increased by 2.7%, prices increased by 7.8%. Price increases offset the spending increases.

The GDP report indicates the uncertain economic outlook amid the backdrop of the Fed’s sequence of rate hikes. Although the data does not signal a recession, it does signal slower economic growth going forward.

Technical Analysis

The USD/CAD is consolidated near the 1.23-1.285 region. Rate hikes, rising yields, and softer oil prices act as a tailwind for the dollar. These factors support a bullish outlook testing the 1.29 level. A pullback is an opportunity for investors to buy the dip.

Resistance is seen near the March 8th high near 1.290. Support is seen near the March 15th lows near 1.276. A slide below this level can be an opportunity for investors to buy the dip of the currency pair.

Short-term momentum turned negative as the fast stochastic had a crossover sell signal. Medium-term momentum is positive as the MACD line generated a crossover buy signal.

This scenario happens when the MACD line (the 12-day moving average minus the 26-day moving average) crosses the MACD signal line (the 9-day MA of the MACD line). The trajectory of the MACD is in positive territory, which reflects an upward trend in price movement.