On Friday, UBS expressed a conservative outlook on the potential for a strengthening of the U.S. dollar against the Canadian dollar, despite recent gains. The financial services provider noted that the currency pair has reached the upper end of its recent trading range and may not maintain levels above 1.40 for an extended period.
The USD/CAD pair has continuously faced resistance trading within the 1.38–1.40 range since late 2022. UBS predicts that this pattern will continue in the short term, even though the US dollar could temporarily rise to 1.40. The company expects the Federal Reserve to cut interest rates later this year, which could affect the trajectory of the currency pair.
UBS also showed a cautious stance on the possibility of the Bank of Canada easing monetary policy. This caution is due to the nature of Canadian inflation, which has recently declined, and to the historical tendency of Canadian policymakers to closely align their decisions with those of the Federal Reserve.
The company proposes to sell the USD/CAD pair at levels starting from 1.39 over the next month, citing a slight increase in volatility for the pair as a supporting factor for this trading strategy. This perspective comes amid a broader context of market movements and monetary policy expectations.
InvestingPro Insights
As market participants consider UBS’s cautious stance on the USD/CAD currency pair, it is worth examining the performance of the US dollar itself from a broader perspective. According to recent data from InvestingPro, the (DXY) has shown varied performance over different time horizons, which could impact currency pair strategies.
Data from InvestingPro indicates a modest one-week total price return of 0.08% for the DXY on April 20, 2024, suggesting near-term stability in the dollar’s value. Over a one-month period, the DXY has appreciated by 2.42%, indicating a more significant uptrend that traders may want to consider when evaluating the potential for the USD to strengthen against other currencies. However, a six-month look back shows a slight decline of 0.14%, reflecting some medium-term volatility in the dollar’s strength.
Year-to-date, the DXY has delivered a total price return of 4.66%, which is in line with UBS’s observation of recent US dollar gains. The one-year total price return of 4.05% also supports the idea that the dollar has been on an upward trajectory over an extended period. With the previous close at USD 106.15, these figures provide a quantitative backdrop to the currency pair’s movements.
InvestingPro Tips suggests that traders should keep an eye on central bank policies and macroeconomic indicators that could influence the performance of the DXY. For those who want to delve deeper into currency trading strategies, InvestingPro offers additional insights and tips. There are 15 more InvestingPro Tips available, which can be accessed with a subscription. Use the coupon code to enhance your trading toolkit PRONEWS24 to get an extra 10% discount on an annual or biennial Pro and Pro+ subscription.
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