USD/CAD trends lower as risk-on trade continues post China stimulus

Key points

• USD/CAD reaches nearly 6-month low at 1.34244
• 20-day Exponential Moving Average declining near 1.3550
• CN50 rallies 6% after China’s major stimulus announcement
• WTI crude oil prices hover around $71 per barrel with projections to $74.09
• Upcoming US core PCE inflation data could influence USD direction

USD/CAD Pair Faces Downward Pressure Towards 1.3400

The USD/CAD pair maintained a lower rate during early European hours this morning, reaching a nearly 6-month low of 1.34244. Additionally, with a currently declining 20-day Exponential Moving Average near 1.3550, there is potential for additional downside for this pair. This technical indicator suggests continued bearish momentum, indicating that the pair might face resistance if it attempts to recover. Traders should monitor these levels closely.

USD/CAD price history

Equities Rally Upon Chinese Stimulus Data

The CN50 shot up 6% after the People’s Bank of China (PBoC) announced the largest stimulus measures since the pandemic. These plans include reserve requirement ratio cuts, reduced key lending rates, and lower loan prime rates. The aim of these policies is to counteract economic slowdown and boost the domestic economy. Such measures have significantly bolstered investor confidence, leading to a rally in Chinese equities and influencing global market sentiment.

Crude Oil Prices Maintain Strong Projections

Amid positive reactions to the development of stimulus measures in China, the US crude oil benchmark WTI (West Texas Intermediate) prices have hovered around the $71 per barrel mark. This comes upon expectations that Chinese economic support may increase demand for crude oil, with forecasts of it trading at $74.09 per barrel by the end of the quarter. The projected rise in WTI to $74.09 per barrel underscores a favorable outlook for the CAD, reflecting Canada’s status as a leading oil exporter. Higher oil prices can typically support the Canadian economy and its currency.

What’s Next for USD/CAD?

With the USD/CAD pair trending lower and facing significant downward pressure, further declines towards 1.3400 appear likely. Upcoming US economic data, including core Personal Consumption Expenditure (PCE) inflation figures, could influence the USD. Higher-than-expected inflation data might provide temporary relief to the USD, but the overall trend remains bearish. The strong positive reaction to China’s stimulus measures has bolstered investor confidence, leading to rallies in equities. Additionally, the anticipated rise in crude oil prices supports a stronger Canadian Dollar (CAD). Traders should keep a close eye on these developments, as they will play a critical role in shaping the near-term direction of the USD/CAD pair.

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