USD/CAD drops to fresh monthly lows under 1.2650 on a stronger loonie

• Canadian dollar among top performers during the American session.
• USD/CAD drops below the 200-day Simple Moving  Average.
• Canadian Q1 GDP on Tuesday, BOC on Wednesday, and NPF on Friday.

The USD/CAD continued to decline during the American session and printed a fresh one-month low at 1.2649. It is hovering near the lows, holding onto daily losses, about to post the fourth consecutive decline.

The combination of an improvement in market sentiment, higher crude oil prices and a weaker dollar during Memorial Day, pushed USD/CAD further to the downside ahead of the Canadian Q1 GDP reading on Tuesday. The dollar continues to correct lower amid easing expectation about Federal Reserve’s monetary tightening.

The pair fell under the 200-day Simple Moving Average (1.2660) for the first time since April 22. The short-term outlook remains bearish with technical indicators at oversold territory.

GDP, BoC and NFP

On Tuesday, Canada's Q1 GDP is due. Analysts at Wells Fargo expect the report to confirm a solid start for the economy in 2022. “The consensus anticipates Q1 growth of 5.5% quarter-over-quarter annualized, which would be only a modest slowing from the 6.7% pace of growth in Q4, and also stronger than the 3% pace of growth forecast by the Bank of Canada in its latest economic projections. Given sturdy activity trends, and with inflation also moving higher, the Q1 GDP report will almost certainly leave the Bank of Canada on course to raise its policy rate another 50 bps to 1.50% its monetary policy announcement” on Wednesday.

In the US, the key report will be the official employment report on Friday. Market consensus is for an increase in payrolls of 320K and a decline in the unemployment rate from 7% to 6.9%.

Technical levels