- The USD/CAD pair had a steep rally in October.
- Canada’s inflation has eased significantly, increasing bets for a super-sized BoC rate cut.
- Oil rose due to an improving demand outlook in China.
The USD/CAD forecast suggests profit-taking after a strong rally, with the pair easing ahead of the crucial Bank of Canada policy meeting. At the same time, the Canadian dollar strengthened as oil prices rallied due to an improved demand outlook.
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The USD/CAD pair had a steep rally in October, with the stronger US dollar as the primary catalyst. Simultaneously, the Canadian dollar has weakened with increasing Bank of Canada rate cut expectations.
The greenback strengthened as it became clear that the US economy was on solid ground. Therefore, the Fed has enough room to gradually lower borrowing costs. Initially, there were fears that the economy was slowing down rapidly. As a result, Fed policymakers voted for a significant rate cut in September. However, since then, they have shifted their outlooks and taken on a more cautious tone, boosting the dollar.
Furthermore, the greenback has gained due to speculation on the upcoming US presidential election. At some point, Trump was in the lead, which increased the likelihood of high inflation. At the same time, uncertainty about the possible outcome is sending traders to safe-haven assets.
On the other hand, Canada’s inflation has eased significantly, increasing bets for a super-sized BoC rate cut. As a result, the CAD has fallen sharply. However, a rally in oil prices on Tuesday allowed the loonie to recover slightly. Oil rose due to an improving demand outlook in China due to recent stimulus efforts.
USD/CAD key events today
- BoC monetary policy meeting
- BoC rate statement
- BoC press conference
USD/CAD technical forecast: Bears show strength near 1.3825
On the technical side, the USD/CAD price has made a new high above 1.3825 before retreating towards the 30-SMA support. Bears recently showed strength when the price punctured the SMA support. However, bulls soon took back control and made a new high.
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Nevertheless, the bullish move was weak, characterized by small-bodied candles. At the same time, although the price made a higher high, the RSI made a lower one, indicating a bearish divergence. If the divergence plays out, the price will soon break below the 30-SMA to retest the 1.3750 support level. Furthermore, such a move would indicate a shift in sentiment to bearish.
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