USD/CAD Outlook: Poised to surpass Friday’s post-NFP swing high near 1.3650 area

• USD/CAD draws support from a combination of factors, albeit lacks any follow-through buying.
• Weaker Oil prices undermine the Loonie and lend support to the pair amid the post-NFP USD strength.
• A positive risk tone caps gains for the safe-haven buck and acts as a headwind for the major.

The USD/CAD pair attracts some dip-buying on the first day of a new week and stalls its modest pullback from the vicinity of mid-1.3600s, or the highest level since November touched in reaction to the upbeat US jobs data on Friday. The closely watched Nonfarm Payrolls (NFP) report showed that the US economy added 303K new jobs in March, well above consensus estimates of 200K and the previous month's downwardly revised reading of 270K. Other details of the publication showed that the Unemployment Rate edged lower to 3.8% from 3.9% in February amid an improvement in the Labor Force Participation Rate to 62.7% from 62.5%. This pointed to a still-tight labor market and fueled speculations that the Federal Reserve (Fed) could delay cutting interest rates. 

The expectations were reaffirmed by hawkish remarks by Dallas Fed President Lorie Logan, saying that it’s much too soon to think about cutting interest rates in the wake of the upside risk to inflation. This, in turn, forced investors to further scale back their expectations for the total number of rate cuts in 2024 to two as against the three projected by the Fed, pushing the US Treasury bond yields higher across the board. The rate-sensitive two-year US government bond and the benchmark 10-year Treasury note surged to a four-month peak, which lent support to the US Dollar (USD). Moreover, the disappointing Canadian jobs report, along with a fall in crude Oil prices, is seen undermining the commodity-linked Loonie and acting as a tailwind for the USD/CAD pair. 

Statistics Canada reported on Friday that the economy unexpectedly shed a net 2,200 jobs in March and that the jobless rate rose to a new 26-month high of 6.1%. Meanwhile, Israel withdrew more soldiers from southern Gaza and committed to fresh talks on a potential ceasefire with Hamas, easing concerns about the risk of a further escalation of conflicts and crude supply disruptions from the Middle East. This, in turn, drags Crude Oil prices away from over a five-month peak touched on Friday, though a strong demand outlook helps limit the downside. Furthermore, a positive risk tone is holding back traders from placing aggressive bullish bets around the safe-haven Greenback and contributing to keeping a lid on any meaningful appreciating move for the USD/CAD pair. 

Investors might also prefer to move to the sidelines ahead of the release of the US consumer inflation figures and the FOMC meeting minutes on Wednesday, which will be looked for fresh cues about the Fed's rate-cut path. In the meantime, the US bond yields and the broader risk sentiment might continue to drive the USD demand. Apart from this, Oil price dynamics should allow traders to grab short-term opportunities around the USD/CAD pair in the absence of any relevant market-moving economic releases on Monday, either from the US or Canada. 

Technical Outlook

From a technical perspective, the recent repeated failures to find acceptance above the 1.3600 mark warrant some caution for bullish traders. That said, a three-month-old ascending channel points to a well-established short-term bullish trend. This, along with positive oscillators on the daily chart, suggests that the path of least resistance for the USD/CAD pair is to the upside. Hence, a subsequent move back towards testing Friday's swing high, around the 1.3645-1.3650 region, looks like a distinct possibility. The momentum could extend further towards challenging the ascending channel resistance, currently pegged just ahead of the 1.3700 round figure.

On the flip side, the 1.3540-1.3535 region now seems to protect the immediate downside ahead of the 1.3500 psychological mark. The latter represents confluence support, comprising the very important 200-day Simple Moving Average (SMA) and the lower boundary of the aforementioned trend channel, which, in turn, should now act as a key pivotal point. A convincing break below might shift the bias in favor of bearish traders and drag the USD/CAD pair to the 1.3420-1.3415 intermediate support en route to the 1.3400 round figure.

(This story was corrected on April 8 at 10:00 GMT to say in the first paragraph that the NFP data was well above consensus estimates of 200K and the previous month's downwardly revised reading of 270K, not 200K)