Canadian dollar bounces up as soft US data hurts the US dollar

On Wednesday, the US Dollar and US rates dropped, while the Canadian dollar recovered some of the ground it had lost due to weak US services activity data. As a result of negative US data, the US dollar declines while the Canadian dollar rises. Contrary to forecasts, US service sector activity slowed down, with Prices Paid printing at their lowest level in years. The US currency has not been supported by the Fed’s Bostic’s hawkish remarks or the country’s robust ADP.

The Canadian dollar is rising and regaining the losses of the previous two days. The US Dollar’s impulsive response to negative US services activity statistics has favoured the Loonie. With the Prices Paid sub-index indicating a notable downturn, the US ISM Services PMI for March fell short of market forecasts. This has reduced investor concerns that a robust economy would force the Fed to scale back its monetary easing programmes, which has caused the US Dollar and US Treasury yields to decline.

The ADP Employment Report’s larger-than-expected increase and the hawkish statements made by Fed Chair Jerome Powell and Atlanta Fed President Raphael Bostic, who reiterated that there is no urgency to decrease interest rates, have been countered by the negative services data.

In addition, the escalating geopolitical tensions and mounting apprehensions regarding reduced supply have propelled petroleum prices to a record high for the year thus far (YTD). This is giving the commodity-linked CAD some further strength.

The US ISM Services PMI fell short of market expectations, which were for a small increase to 52.7, from 52.6 in February to 51.4 in March. After hitting its lowest point in years, 53.4, the ISM Prices Paid sub-index fell from 58.6 in February and 64 in January. This suggests that the economy is making a disinflationary contribution.

Although there hasn’t been much of an impact on the US dollar, Fed Chair Jerome Powell reiterated a little while later that the bank is not in a rush to start cutting borrowing prices. The US ADP Employment Report, released earlier on Wednesday, indicated that there were 184,000 more new payrolls in March compared to 155,000 in February. The market was expecting to see a drop to 148,000.

Before Powell, Atlanta Fed President Raphael Bostic held his hawkish ground on Wednesday suggesting that rate cuts might not arrive before Q4.

Technically, there is pressure on the USD/CAD exchange rate, with support levels around 1.3515 and 1.3475. Bears are once again in control of the USD/CAD due to a significant bearish reversal that occurred after the ISM Services PMI was released. Their goal is to break through the current pressure-filled support at 1.3515.

The pair is still trading inside of a slightly bullish channel, but the overall picture indicates choppy and volatile trading. The base of the channel at 1.3475 and 1.3440 is protected by the previously described 1.3515 level. Resistances on the upswing are seen at 1.3585 and 1.3615.