USD/CAD dives as Fed hints pausing rates in June, BoC’s pressured after GDP data

• Dovish hints from Fed Governor Jefferson led to two-week USD/CAD lows.
• The recessionary US PMI trend clashes with robust Canadian GDP growth.
• Private sector hiring surge belied by tighter US labor market and rising jobless claims.

USD/CAD plunged more than 100 pips from around the 1.3580s area, as Fed dovish comments took center stage while manufacturing activity in the United States (US) decelerated. That, alongside solid growth figures from Canada, sponsored the USD/CAD fall of more than 0.90%. The USD/CAD exchanges hands at 1.3440, trading around fresh two-week lows.

Dovish stance by Fed policymakers and contractionary ISM PMI data overshadows upbeat ADP report

Market sentiment improved, as shown by Wall Street trading in the green. The Institute for Supply Management (ISM) revealed May PMI, which clocked in at 46.9, trailing April’s 47.1 and below a forecasted 47 – a recessionary signal, falling for a seven-straight month. The Fed’s aggressive tightening and sinking of new orders heavily burdened the PMI and the US Dollar.

The ADP Report indicated private sector hiring surged to 278K in May, surpassing 170K estimates but lagging behind April’s 291K. This underlines a tight labor market, further echoed by the rise in initial jobless claims to 232K – slightly below estimates but exceeding the prior week’s downwardly revised 230K.

Regarding US central bank speakers, on Wednesday, Fed Governor Philip Jefferson, backed by Harker, hinted at bypassing a rate hike at June’s meeting. Yet, Harker conceded that new data could shift his stance.

Recently, Harker reiterated Wednesday’s stance for skipping June “and see how it goes.” He added that it’s time to hit the stop button at least for one meeting so that the US central bank can assess the current economic situation.

Across the borders, the latest GDP figures in Canada showed the economy’s resilience, increasing investors’ speculations for a Bank of Canada (BoC) interest rate increase. The release of the S&P Global Manufacturing PMI for May showed that business activity decelerated, as the index dropped from 50.2 to 49.0 in May.

USD/CAD Price Analysis: Technical outlook

From a technical perspective, the USD/CAD is neutrally biased, though closing into the 200-day Exponential Moving Average (EMA) at 1.3417, the first support following the USD/CAD collapse. Should be said the Relative Strength Index (RSI) indicator portrays sellers gathering momentum, as well as the 3-day Rate of Change (RoC). But, with a flat slope, EMAs warrant caution, as the USD/CAD pair could be in a consolidation phase. For a bearish continuation, USD/CAD must claim the 200-day EMA, followed by the 1.3400 figure ahead of testing the May low of 1.3314. Conversely, the USD/CAD first resistance would be the 1.3500 figure, followed by the 100-day EMA at 13512. Next, resistance levels lie at the 50 and 20-day EMA, each at 1.3526 and 1.3531, respectively.