- Investors have lowered their expectations for a cut in US interest rates.
- US retail sales data came in much lower than expected, showing poor consumer spending.
- US wholesale inflation beat forecasts.
The weekly USD/CAD forecast paints a bullish picture, boosted by the diminishing likelihood of an early Fed rate cut, thanks to firm US inflation.
USD/CAD Ups and Downs
The pair fluctuated throughout the week, ending slightly higher. As the week began, the US released a report on consumer inflation, which beat forecasts. As a result, investors have lowered their expectations for a rate cut in the US. Moreover, the probability of the first reduction in June has increased. Accordingly, the dollar jumped, pushing the pair higher.
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However, on Thursday, the US retail sales figure was much lower than expected, showing weak consumer spending. A slowing economy supports bets on a rate cut. However, as the week ended, there was another surge in the dollar as US wholesale inflation beat forecasts. Persistent inflation is likely to encourage the Fed to keep interest rates high.
Next week’s key events for USD/CAD
The US will release the minutes of the FOMC meeting, which are likely to contain clues about the timing of the Fed’s rate cut. Meanwhile, Canada will release headline inflation and retail sales reports. Like most major central banks, the Bank of Canada dismissed market expectations of an upcoming rate cut, saying inflation remained high.
Therefore, next week’s inflation report will have a significant impact on the outlook for the bank’s policy. The higher-than-expected figure is likely to signal a delay in rate cuts, boosting the Canadian dollar. Meanwhile, falling inflation would increase bets on lower rates, weighing on the Canadian dollar.
USD/CAD Weekly Technical Forecast: Bulls under pressure at 50% retracement
On the technical side, USD/CAD is bullish, with price just above the 22-SMA and RSI just above 50. The bullish move started when the price reversed sharply at the 1.3200 support level. However, the bulls weakened after the price retraced 50% from the previous move.
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Notably, the price has started to consolidate, holding close to the 22-SMA. Consequently, it is trapped between the Fib and SMA levels. Bulls are struggling to push above the 0.5 Fib level. If they fail, the price is likely to break below the SMA to continue the previous bearish move. However, if the bulls regain momentum, the price will break above the Fib level to return to 100% of the previous move.
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