USDCAD: How long will the dollar rise last?

The USD/CAD pair continues to rise after a strong rebound last week near the crucial 200-day Simple Moving Average (SMA) level around 1.3400. Tuesday marks the third consecutive day of growth. During the Asian session, spot prices reach the highest level since late March, and investors await further strengthening beyond the 1.3700 threshold before placing new bets.

The US dollar (USD) reaches a new 10-month high following the increasing acceptance that the Federal Reserve (Fed) will maintain its hawkish stance, supported by robust macroeconomic data from the United States. Additionally, comments from Cleveland Fed President Loretta Mester confirm market expectations that the US central bank will keep interest rates higher for an extended period. This situation drives the yield on the 10-year US government bond to a 16-year peak. Moreover, a generally weak risk tone continues to favor the US dollar as a safe haven and acts as a support for the USD/CAD pair. On the contrary, the Canadian dollar (CAD) is weighed down by growing expectations that the Bank of Canada (BoC) has finished raising interest rates.

Statistics Canada reported on Friday that Canada's economic growth stalled in July, with the manufacturing sector posting its biggest decline in over two years. This adds to the 0.2% contraction in GDP in June, fueling speculations that the BoC will maintain interest rates despite persistent inflation. Along with further declines in oil prices, this weakens the commodity-linked Canadian dollar and supports the USD/CAD pair.

Oil prices continue to decline for the fourth consecutive day, reaching a three-week low. This decline could be attributed to profit-taking due to concerns that economic headwinds from higher interest rates in the US may reduce fuel demand. However, signs of reduced global supply should limit the downside. In any case, the fundamental outlook favors the US dollar, supporting prospects for further appreciation of the USD/CAD pair. Currently at the H4 level, there is an upward momentum that led to the breakout of two significant previous swing highs at 1.3704 and 1.355. This breakout could suggest potential short retracement opportunities, but personally, I believe the price is attempting to reach highs around 1.38, where we have a resistance zone at the H4 level. It might then undergo a retracement for a retest of the support and resistance zone. I would like to hear your thoughts. Regards from Nicola, CEO of Forex48 Trading Academy.