The USD/CAD exchange rate has been in a tailspin since the start of June 2023. The US Dollar to Canadian Dollar exchange rate has plummeted to 1.322, which is the lowest level for the pair since September 2022. There are multiple factors behind the drop, which we are going to discuss below.
On Thursday, the Canadian dollar gained strength against the greenback as the dollar strength index tanked again. The USD/CAD exchange rate fell 0.77% to retest the key support level of 1.322. The latest analysis reveals that there could be more downside for the pair in the coming days.
Why Is US Dollar To Canadian Dollar Exchange Rate Tanking?
After the FOMC meeting on June 14, as per the expectations, the US Federal Reserve announced to keep the rates constant. This resulted in a massive surge in equities and weakened the dollar in terms of other major currencies. Consequently, the dollar strength (DXY) index dropped to its lowest level in four weeks.
The drop in the DXY index is not surprising as the equities are rallying very hard. The risk appetite of investors seems to have increased as the equities keep on rallying. The weakness in the dollar has adversely affected the USD/CAD pair, which is now hanging by a thread.
USD/CAD Needs To Hold 1.32
The latest analysis reveals that the USDCAD exchange rate is retesting its 1.32 support level on the chart. This support level coincides with the November 2022 lows. A breakdown below this support may trigger a bigger push toward the September lows of 1.296.
However, due to the bullish divergence on the 4H chart, at least a short bounce appears to be on the cards. The momentum of this bounce will decide the USD/CAD forecast, which right now stands pretty bearish. If the DXY index retests its 101 support, the Canadian dollar will become very strong.
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