Canadian Dollar to Follow Crude Oil Higher? Watch for Break Above This Key Barrier

Since the start of the year, the USD/CAD has been trading sideways in a channel, and there's a possibility it might test the upper limit soon.

This could be sparked by two main factors. The US dollar has been strengthening due to expectations that the Federal Reserve might delay its pivot, while demand for the Canadian dollar has been supported by rising oil prices and improving business sentiment, as Bank of Canada's survey of Canadian businesses indicated recently.

Among the macroeconomic data expected this week, the focus will be on the US labor market report, typically released on the first Friday of the month.

Canadian Business Sentiment Improves

Canadian businesses and consumers are showing moderate optimism. According to the Bank of Canada's survey, there's an expectation of gradual improvement in business conditions in the coming quarters.

The survey indicates a decrease in the percentage of businesses anticipating a recession and an increase in those expecting sales to improve. However, fewer companies are planning to increase spending on new equipment this year.

On the consumer side, the survey suggests that interest rates are not expected to rise further, with a likelihood of rate cuts in the near future. However, high inflation and the Bank of Canada's tight monetary policy continue to restrain consumer spending.

Recent GDP data from the US economy, released just before Easter, was positive. Although the quarter-on-quarter growth rate of 3.4% was slightly lower than the previous reading of 4.9%, it still exceeded forecasts of 3.2%.

However, the strength of the US economy provides reassurance, making a deep recession scenario unlikely.

This Friday, investors will closely watch US labor market data. If the readings align with forecasts, it will signal stability, particularly regarding the unemployment rate and nonfarm payrolls.

Recent revisions to data from previous months have significantly influenced the market's overall perception of the data.

USD/CAD: Resistance at 1.36 Now Under Pressure

The USD/CAD currency pair is currently capped around the 1.36 level, highlighted by a noticeable supply zone. In recent weeks, buyers have consistently pushed against this level, and with a decreasing supply response, a breakout to the upside seems likely.

If such a scenario unfolds, buyers have a relatively large amount of room with the next target only in the region of 1.39, where the medium-term highs fall.

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Disclaimer: This article is written for informational purposes only; it does not constitute a solicitation, offer, advice, or recommendation to invest as such it is not intended to incentivize the purchase of assets in any way. I would like to remind you that any type of asset, is evaluated from multiple points of view and is highly risky and therefore, any investment decision and the associated risk remains with the investor.