USD/CAD Price Forecast: Remains confined in a multi-week-old range; not out of the woods yet

• USD/CAD recovers further from YTD low amid some follow-through USD buying.
• The Fed's hawkish pause and trade-related optimism lend support to the buck.
• Rising Oil prices underpin the Loonie and cap the pair ahead of Trump's presser.

The USD/CAD pair attracts buyers for the second successive day on Thursday and recovers further from the year-to-date (YTD) low, around the mid-1.3700s touched earlier this week. The momentum lifts spot prices to the 1.3880-1.3885 region, or over a one-week high during the first half of the European session, and is sponsored by some follow-through US Dollar (USD) buying.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, advances to the 100.00 psychological mark in the wake of the Federal Reserve's (Fed) hawkish pause on Wednesday. As was widely expected, the US central bank left the federal funds rate unchanged in a range between 4.25%-4.5%.In the accompanying policy statement, the Fed noted that the uncertainty about the economic outlook has increased further. Adding to this, Fed Chair Jerome Powell said during the post-meeting press conference that near-term inflation expectations have moved up after tariffs and added that the right thing to do is wait for further clarity before adjusting the policy.

The CME Group's FedWatch Tool indicated a nearly 80% chance that the US central bank will maintain the status quo in June. This, in turn, is seen lending some support to the buck. The markets, however, are still pricing in a greater chance of at least three 25-basis-point (bps) Fed rate cuts by the end of this year. Moreover, investors remain worried about a recession on the back of US President Donald Trump's rapidly shifting stance on trade policies, which act as a headwind for the USD. In fact, Trump announced 100% tariffs on movies produced outside the US on Sunday and also indicated that he plans to impose fresh tariffs on pharmaceutical imports over the next two weeks.

Adding to this, Trump on Wednesday said that he was not open to lowering the 145% tariffs imposed on China, tempering hopes for a quick resolution to the trade war between the world's two largest economies. Trump added that he is in no hurry to sign any deals, though he said to announce a major deal with a big, highly respected country later this Thursday. Trump's remarks, however, keep a lid on the optimism led by the announcement of US-China trade talks later this week and hold back the USD bulls from positioning for any further gains.

Apart from this, a modest uptick in Crude Oil prices, following the overnight pullback from a one-week high, underpins the commodity-linked Loonie and contributes to capping the USD/CAD pair. Apart from this, expectations for a US-Canada trade deal could support the Canadian Dollar (CAD), warranting some caution before confirming that the currency pair has formed a near-term bottom and positioning for any further appreciating move.

USD/CAD daily chart

Technical Outlook

From a technical standpoint, the USD/CAD pair remains confined in a familiar range held over the past three weeks or so. This might still be categorized as a bearish consolidation phase against the backdrop of the recent sharp retracement slide from over a two-decade high touched in February. Moreover, oscillators on the daily chart - though they have been recovering - are still holding in negative territory, suggesting that the move high could be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

In the meantime, the top boundary of the short-term trading range, around the 1.3900 round-figure mark, is likely to act as an immediate strong barrier. However, a sustained strength beyond might trigger a short-covering move and lift the USD/CAD pair to the 1.3950-1.3955 region. The momentum could extend further, though it is more likely to remain capped near the 200-day Simple Moving Average (SMA), currently pegged just above the 1.4000 psychological mark.

On the flip side, the Asian session low, around the 1.3800 neighborhood, could offer some support ahead of the YTD through, around the 1.3750 area touched on Tuesday. Some follow-through selling below the latter will mark a fresh bearish breakdown and make the USD/CAD pair vulnerable to weakening further below the 1.3700 round figure, towards the next relevant support near the 1.3650-1.3645 region.