The USD/CAD pair is currently experiencing a rally as investors seek out safe havens in response to ongoing banking instability in the United States. Following the decline of two major banks in quick succession, banking stocks have seen a significant sell-off, leading many investors to seek alternative investment options.

As a result, the USD/CAD pair is currently trading at 1.3744, reaching a daily low of 1.3659 earlier in the trading period. The pair has a tough week in the coming days, with the pair expecting to wait for crucial data releases.

Market Sentiment Shift

The global market faces several challenges and uncertainties, contributing to investors’ unease. Perhaps most significantly, Wall Street has suffered additional losses in the wake of the default by Credit Suisse, which has led many banks to take a more cautious approach to the institution.

Adding to concerns is the fact that the CBOE Fear Index, also known as the VIX, is up and currently approaching the 30.00 level. This index measures investor sentiment and volatility and suggests that investors are increasingly risk-averse in the current economic climate.

Economic Data

The latest economic data from the US could have been more positive. Sales have dipped by 0.4% month over month, which is higher than the 0.3% contraction that analysts had predicted. Despite this negative trend, the 3.2% jump in January and February data shows that the country is spending at a lower rate.

In addition, the US Bureau of Statistics has released the Producer Price Index, which showed a 0.1% drop month over month, below the market expectation of 0.3%. Furthermore, the core Producer Price Index also came in lower than predicted at 0.0% instead of 0.4%, indicating that prices are dropping amid the monetary tightening cycle.

Safe-haven asset flows have bolstered the greenback, with the dollar adding 1.13% to 110.4836. However, US Treasuries have been getting punished by investors, with short and long-term bond yields falling. The two-year yield is down 37 basis points, and the 10-year treasuries have dipped 24 basis points, leading to a 3.889% and 3.453% decrease, respectively.

Meanwhile, in Canada, the housing data exceeded expectations, rising to 224k, an uptick from 216.5k, according to data from the CMHC. The dollar is expected to remain under pressure due to the market mood, and as Canada eases monetary tightening, the pair bias remains on an upward trajectory.

USD/CAD Analysis

Based on technical analysis, the USD/CAD pair is on an upward trajectory and could snap a three-day defeat run if it breaks through the current price level. The pair has tested the 20-day exponential moving average at 1.3645 and bounced back up, forming a bullish engulfing pattern on the candle chart.

The oscillators are mostly in bullish territory, except for the rate of change (RoC), which suggests that bearish pressures are waning and about to cross into neutral.

If the upward trend continues, the pair could face its first resistance at Wednesday’s highs, and a breach at this level could expose the highs at 1.3862 before moving above 1.3900. On the other hand, if the pair cracks the 20-day exponential moving average at 1.3645, it could pave the way for a move toward the 50-day EMA hovering at 1.3550.