USD/CAD jumps above 1.3260 as sentiment sours

• USD/CAD jumped to a high of 1.3270 before stabilizing at 1.3235.
• PBoC rate cuts fueled global economic downturn worries.
• Falling Oil prices and strong USD weight on the Canadian Dollar.

On Tuesday, the Loonie lost traction amid a cautious market mood following the decision by the People’s Bank of China to cut its main key rates by 10 basis points. Spurred by the cut, Oil prices plunged due to fears of a global economic downturn. On the other hand, the USD held its ground thanks to upbeat US Housing market data. 

PBoC cut rates while the US reported strong Housing data

During the Asian session, the People's Bank of China made an announcement to decrease the benchmark Loan Prime Rates (LPRs) by 10 basis points (bps). This decision resulted in the one-year LPR declining from 3.65% to 3.55%, while the five-year LPR was reduced from 4.30% to 4.20%. These rate cuts served as a reminder to investors of the sluggishness of Chinese economic activity, and as Oil prices tend to be positively correlated with the health of the main world economies, they plunged more than 1.50%. In that sense, as Canada is a large Oil producer, the CAD weakened.

On the other hand, the US Census Bureau's May Housing Starts data surpassed expectations with a significant increase of 21.7%, outperforming the anticipated 0.8% decline. Similarly, Building Permits for the same month exceeded consensus by rising 5.2% instead of the expected 5% fall, helping the USD hold its ground as the DXY index trades with gains at the 102.55 area.

Reacting to the PBoC decision and US data, the US bond yields weakened across the curve, signaling a cautious market mood. The 10-year bond yield fell to 3.73%, while the 2-year yield sits at 4.69% and the 5-year at 3.96% – all three with more than 1% declines that limits the USD’s upside.

USD/CAD Levels to watch

The technical analysis of the daily chart indicates a neutral to bullish stance for the USD/CAD in the short term. While buyers have shown some strength, they have yet to overcome the negative territory. The Relative Strength Index (RSI) currently sits below its midpoint, but shows a positive slope while the Moving Average Convergence Divergence (MACD) depicts decreasing red bars, suggesting a waning selling momentum.

Upcoming resistance for USD/CAD is seen at the 1.3270 (daily high) zone, followed by the psychological mark at 1.3300 and the 1.3350 area. On the other hand, on the downside, the next support levels to watch are the 1.3200 level, followed by the cycle low at 1.3180 and the 1.3150 area.

USC/CAD Daily chart