USD/CAD advances sharply on a buoyant US Dollar on risk-aversion linked to Credit Suisse

Canadian dollar
  • When investors sought protection, market sentiment deteriorated and the USD/CAD increased.
  • US retail sales fell short of expectations, although producers paid cheaper prices.
  • Price analysis of the USD/CAD: Buyers are looking at 1.3900 as a possible upswing resumption.

The American financial and banking crisis, which is threatening to spread globally, is fueling safe-haven flows towards the US dollar, which has caused the USD/CAD to rise. With growing concerns about a financial catastrophe, the bankruptcy of two American banks prompted a sell-off in Credit Suisse’s (CS) stock. As a result, the USD/CAD is currently trading at 1.3774, up from a low of 1.3659.

Investors’ morale continues to deteriorate, as evidenced by the stagnant performance of global markets. Sentiment moves negatively, supporting the US Dollar. As more banks reduce their exposure to Credit Suisse amid a potential default by that company, Wall Street continues to trade in the red. The CBOE Volatility Index (VIX), sometimes known as the “fear index,” surged and climbed as high as 30.00, reflecting the negative mood in the financial markets.

Meanwhile, retail sales in the US fell by 0.4% MoM compared to forecasts of a 0.3% loss, according to economic statistics. Despite the dismal reading, data from February and January’s 3.2% increase still indicate that Americans are spending less money. The Producer Price Index (PPI), often known as the price paid by producers, fell by 0.1% MoM in February, below expectations of a 0.3% rise, according to data from the US Bureau of Labor Statistics. In contrast to expectations for a 0.4% gain, Core PPI came in at 0%, indicating that prices are beginning to decline under the Fed’s vigorous tightening cycle of 20220.

Because of this, the US Dollar (USD) gained strength, with the US Dollar index rising 1.13% to 104.836. Investors, however, have penalised US Treasury bond yields, pushing down the US 2s and 10s’ losses by 37 basis points (bps) and 24 bps, respectively, to 3.889% and 3.453%.

According to the Canadian Mortgage and Housing Corporation, housing starts in Canada increased to 224K units in February, exceeding predictions of 220K, up from 216.5K revised in January (CMHC).

Hence, market sentiment and flows for safety would continue to support the USD/CAD exchange rate. Also, if the Bank of Canada (BoC) stopped raising interest rates, the US Dollar would continue to be supported by the interest rate disparity. Hence, the USD/CAD bias is still positive.

USD/CAD technical examination
The USD/CAD remains positive, ending a three-day losing streak. The pair tested the 20-day EMA at 1.3645, but after that, it soared out of the zone and created a bullish engulfing candle chart pattern. Except for the Rate of Change (RoC), which indicates that selling pressure is decreasing and is set to pass above neutral, oscillators are still in the positive zone.

The USD/CAD initial resistance level in the event of a bullish continuation would be today’s high, or 1.3814. Before the pair edges to 1.3900, a violation of the latter will reveal the YTD high at 1.3862. An alternative possibility would be for the USD/CAD to break through the 20-day EMA at 1.3645, opening the door to the 50-day EMA. At 1.3550.