USD/CAD Outlook: 1.3600 confluence support holds the key ahead of US Q1 GDP

• USD/CAD erodes a part of the overnight gains and is pressured by a combination of factors.
• An uptick in Crude Oil prices underpins the Loonie and exerts pressure amid a softer USD.
• The downside seems limited as traders look to the key US macro data for a fresh impetus.

The USD/CAD pair struggles to capitalize on the previous day’s goodish recovery move from the vicinity of mid-1.3600s, or a two-week low and meets with a fresh supply on Thursday. Crude Oil prices edge higher amid the risk of a wider conflict in the Middle East, which could potentially disrupt global supply. This, in turn, is seen underpinning the commodity-linked Loonie, which, along with the emergence of some US Dollar (USD) selling, turn out to be key factors exerting downward pressure on the currency pair. 

That said, data from the US Energy Information Administration (EIA) released on Wednesday pointed to signs of slowing fuel demand in the world’s biggest Oil consumer. This comes on top of a slowdown in the US business economic activity in April and worries about economic headwinds stemming from a delay in rate cuts by the Federal Reserve (Fed), which, in turn, should cap gains for Crude Oil prices. Furthermore, hawkish Fed expectations should limit the USD downside and lend some support to the USD/CAD pair. 

Investors seem convinced that the US central bank will keep interest rates higher for longer and have also downsized the number of rate cuts in 2024 amid still sticky inflation. This, in turn, remains supportive of elevated US Treasury bond yields and favors the USD bulls ahead of the key US macro data. The first estimate, or the Advance US GDP report is due for release later today and is expected to show that the world’s largest economy grew by 2.5% annualized pace during the first quarter as compared to the 3.4% previous. 

The focus will then shift to the US Personal Consumption Expenditures (PCE) Price Index on Friday. This will play a key role in influencing the Fed’s future policy decisions, which, in turn, will drive the USD demand and provide a fresh directional impetus to the USD/CAD pair. Hence, it will be prudent to wait for strong follow-through selling before positioning for an extension of the currency pair’s recent sharp retracement slide from the 1.3845 region, or its highest level since November 10 touched earlier this month. 

Technical Outlook

From a technical perspective, weakness below the 1.3655 area, or the weekly low touched the previous day, is likely to find decent support near the 1.3610-1.3600 strong resistance breakpoint. The latter near the 50-day Simple Moving Average (SMA) and should act as a key pivotal point. Given that oscillators on the daily chart have been losing traction, a convincing break below the said confluence might prompt aggressive technical selling. The USD/CAD pair might then accelerate the downward trajectory towards the 1.3540 intermediate support before eventually dropping to the 1.3500 psychological mark. 

On the flip side, the 1.3700 round figure now seems to act as an immediate hurdle ahead of the overnight swing high, around the 1.3725-1.3730 region. A sustained strength beyond will reaffirm the near-term positive outlook and allow the USD/CAD pair to aim back to reclaim the 1.3800 mark. The momentum could get extended further towards challenging the monthly peak, around the 1.3845 region, en route to the 1.3900 neighbourhood, or November 2023 swing high.