On Friday, UBS expressed a conservative view of the potential for the US dollar to strengthen against the Canadian dollar, despite recent gains. The financial services firm noted that the currency pair is near the top end of its recent trading range and may not be able to sustain levels above 1.40 for an extended period.
The USD/CAD pair has been constantly facing resistance since the end of 2022, trading in the range of 1.38–1.40. UBS predicts that this pattern will continue in the near future, even though the US dollar may temporarily rise to 1.40. The firm expects the Federal Reserve to cut interest rates later this year, which could impact the currency pair’s trajectory.
UBS also expressed a cautious position regarding the possibility of easing monetary policy by the Bank of Canada. This caution stems from the nature of Canadian inflation, which has fallen recently, as well as the historical tendency of Canadian policymakers to closely align their decisions with those of the Federal Reserve.
The firm suggests shorting the USD/CAD pair at levels starting at 1.39 over the next month, citing a slight increase in the pair’s volatility as supporting the trading strategy. This outlook comes within the broader context of market movements and monetary policy expectations.
InvestingAbout Insights
As market participants consider UBS’s cautious stance on the USD/CAD currency pair, it is worth examining the dynamics of the US dollar itself from a broader perspective. According to recent data from InvestingPro, (DXY) has demonstrated varying performance over different time horizons, which could impact forex strategies.
InvestingPro data shows DXY’s modest 1-week total return of 0.08% as of April 20, 2024, suggesting near-term stability in the dollar’s value. Over the 1-month period, DXY has strengthened 2.42%, indicating a larger uptrend that traders may want to consider when assessing the potential for the US dollar to strengthen against other currencies. However, the six-month review shows a slight decline of 0.14%, reflecting some medium-term volatility in the dollar.
Year to date, DXY’s total return has been 4.66%, in line with UBS’ observations of the recent rise in the US dollar. The total annual return of 4.05% also supports the view that the dollar has been on an upward trajectory for a longer period. Considering the previous close at $106.15, these indicators provide a quantitative backdrop for the currency pair’s movement.
InvestingPro Tips advise traders to monitor central bank policy and macroeconomic indicators, which could impact DXY’s performance. For those who want to delve deeper into currency trading strategies, InvestingPro offers additional information and advice. There are 15 more InvestingPro tips available with a subscription. To expand your trading toolbox, use coupon code PRONEWS24 to receive an additional 10% discount on annual or biennial Pro and Pro+ subscriptions.
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