Our last USD/CAD forecast is still valid as the pair has bounced off a key trendline on its 1D chart. Our analysis shows that if the bounce in DXY Index continues, USD to CAD exchange rate can soar in the coming weeks. Since March 2023, Canadian Dollar has been gaining strength in terms of the US Dollar.
After a 0.59% drop on Monday, USD/CAD is currently in the midst of a recovery. The pair is still trading below its weekly open despite three consecutive green days. On Thursday, USD Dollar remained strong and gained 0.21% in its pairing against Canadian Dollar.
DXY Bounces Off Key Support
The dollar strength index, also known as DXY Index, fell to its lowest level in 2 months during this week. This was an indicator of a weakness in the US dollar as compared to major global currencies, including Canadian Dollar. The major reasons behind a weakening dollar are the ongoing banking crisis in the US and the much-anticipated pause in rate hikes.
Nevertheless, the DXY Index has rebounded after dropping close to its yearly lows. The dollar strength index was up 0.17% today, which also led to a rally in USD/CAD. If the bounce in DXY continues, Canadian Dollar to US Dollar Exchange rate will decline very sharply.
USD/CAD Retests Bullish Breakout
The following USD to CAD chart reveals that the ongoing bounce is not surprising. As mentioned in our previous analysis, the pair broke out of the descending triangle pattern, which resulted in a surge to 1.386 in March 2023. Such a breakout often results in another retest of the trendline, which is quite evident on the USD/CAD chart below.
If the US Federal Reserve remains hawkish in the coming weeks, then the dollar will start t again strengthen once again. This may result in a strong rally in its Canadian pairing with potential targets of 1.37 and 1.38 in sight. The upcoming March 2023 US inflation data will also affect the price action in the next week.
