Despite a Sluggish USD Index, USD/CAD Is Gaining Momentum For a Break Above 1.3550

After an outstanding rise to the north near 1.3550 in the early Asian session, the USD/CAD pair has turned sideways. The Canadian dollar is anticipated to extend its recovery above the immediate resistance level of 1.3550. Despite a lackluster performance by the US Dollar Index (DXY), the Canadian dollar appears to be extremely strong.

In Asia, S&P500 futures are declining as investors fret over prospective quarterly corporate results in the United States, indicating a decline in market participants' risk appetite. The US Dollar Index (DXY) has fallen below 101.70 and is falling toward the four-day support level of 101.63, indicating a strong momentum to the downside. As a further rate increase from the Federal Reserve (Fed) is widely anticipated, demand for US government bonds is waning. The yields on 10-year US Treasuries have risen to near 3.57 percent.

The USD index has failed to leverage on Friday's release of optimistic preliminary S&P PMI data for the United States. The S&P Manufacturing data increased to 50.4 from 49.0 (consensus) and 49.0 (previous release). The figure surpassed 50.0 for the first time in the previous six months, signifying economic recovery despite the pessimistic conditions of higher interest rates from the Fed and restrictive conditions imposed by US banks on consumer- and business-type loans.

Canada's feeble retail demand has exerted enormous pressure on the Canadian dollar. The Retail Sales report for February showed a 0.2% decline in monthly Retail Sales, compared to an expected 0.6% decline. The Retail Sales data excluding autos decreased by 0.7% versus the 0.1% decline anticipated by market participants. This indicates that higher interest rates imposed by the Bank of Canada (BoC) have had a significant impact on retail demand. The Governor of the Bank of Canada (BoC), Tiff Macklem, is anticipated to maintain rates at elevated levels to reduce inflation's tenacity.

Above $77.00, oil prices are exhibiting a sideways auction pattern. As global central banks prepare for a new cycle of rate hikes, which would have a significant impact on oil demand, it appears probable that oil prices will continue to decline. Notably, Canada is the leading oil exporter to the United States, and reduced crude prices will have an effect on the Canadian dollar.