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USD/CAD Forecast: Canadian Dollar Tumbles As DXY Bounces

The USD/CAD pair is once again showing a strong correlation with the DXY Index. After strengthening against the US dollar in the first two weeks of April, the Canadian Dollar is weakening once again. On the weekly timeframe, the USD to CAD exchange rate is currently 0.58% up this week.

On Friday, the Canadian dollar slid against the US dollar by 0.17%. This led to a surge in USD/CAD pair, which is trading at 1.3613. Our analysis suggests that there is a lot of upside for the pair, but a slight pullback could still be around the corner.

Canadian GDP To Fall In March 2023

According to the latest estimates, the Canadian GDP is expected to fall by 0.1% in March 2023. The country’s economy appears to be facing some serious headwinds from the high interest rates in the country. This makes it highly unlikely for the Bank of Canada to keep hiking the rates further.

BOC is expected to lower the rates starting in early 2024. It will be tough for the economy to grow in a prolonged high interest rate environment. This will generate tailwinds for USD/CAD, which may keep rallying in 2023. However, the effect can be offset if the US Federal Reserve also pauses the rate hikes in its upcoming FOMC meeting.

USD/CAD Bounces After A Fakeout

The USD to CAD exchange rate chart shows a steep decline followed by a strong bounce. As evident from the following chart, the pair went below the trendline and closed below the 200 MA. However, the dip was immediately bought, and the pair rebounded strongly. Such moves are meant to shake out the weak hands in the markets and are known as ‘fakeouts’.

Considering the momentum behind the ongoing rally, the USD/CAD forecast is looking fairly bullish for the near term. However, there can be a slight pullback before the next leg up to grab the liquidity around the 200 MA. This can be a good opportunity to go long for swing traders.

I’ll keep posting my updated outlook on USD/CAD in my free Telegram group, which you’re welcome to join.

USD/CAD chart
USD to CAD Chart