USD/CAD hovers around 1.2835

The US Dollar Index reclaimed the 103.000 mark but ended the week with losses of 1.38%, meanwhile, the Canadian dollar gained 0.47% versus the USD in the week, which was soft throughout the whole week.

The USD/CAD pair has been seesawing during the North American session and is recording minimal gains of 0.06% on Friday, after reaching a daily low below 1.2800, then, the pair later reclaimed by USD/CAD bulls that struggled at the 20-DMA at around 1.2868. The USD/CAD is trading at 1.2836.

The negative market mood increased appetite for safe-haven peers in the forex space, particularly the USD, while the JPY is the weakest on the week’s last trading day. US equities plunged between 1.51% and 2.49%, reaching fresh 52-week lows. That despite investors’ cheered rate cut of 0.15% by the Bank of China aimed to stimulate the Chinese economy, which is going to another Covid-19 outbreak that triggered more than one-month lockdowns in Shanghai.

Mixed economic data on the Canadian docket boosted the prospects of the Canadian dollar, which gained 0.47% in the week. Canada’s inflation rate rose by 6.8%, hitting a 31-year high. On Thursday, Statistics Canada reported that prices paid by producers, also known as PPI, came in line with expectations, but Raw Materials skyrocketed to 38.4% y/y, higher than the 31% estimations.

The latest Canadian inflation data might keep the Bank of Canada under pressure to bring monetary policy to neutral. Although the Canadian central bank has already acknowledged that additional 50bp hikes are likely, today’s report is unlikely to tip the scales towards a 75bp hike.

Friday’s price action shows that the USD/CAD tumbled below the 20-day moving average at 1.2869, and albeit being positive in the session, USD/CAD buyers have been unable to reclaim the level. Still, it’s worth noting that the Relative Strength Index, although it fell off the cliff from around 80 readings to 51.49, turned bullish, and is aiming higher, a signal that USD/CAD bulls remain in charge.

The USD/CAD pair’s first resistance would be the 20-DMA at 1.2869. Break above would expose the 1.2900 mark, followed by the May 16 daily high at 1.2981, then the figure at 1.3000. On the flip side, the USD/CAD first support would be 1.2800. Once cleared, the next demand zone would be the April 29 daily low at 1.2718, followed by the confluence of the 50 and 100-DMA at 1.2695 and 1.2690, respectively.