- Dollar gains ground as traders brace for the outcome of the FOMC policy meeting.
- Markets expect the Fed to keep rates on hold at Wednesday’s meeting.
- Tuesday’s data revealed a significant drop in inflation in Canada.
USD/CAD price analysis is bullish on Wednesday, with the dollar on the front foot ahead of the FOMC meeting. Meanwhile, the Canadian dollar faces headwinds as recent data revealed a significant drop in inflation.
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Markets expect the Fed to keep rates on hold at today’s meeting. At the same time, there is speculation that policymakers will push back expectations of a rate cut after recent hot inflation data.
Accordingly, the dollar has remained stable since last week. In addition, investors lowered expectations for the first cut in June. Bets fell significantly after Goldman Sachs said it expects 3 Fed cuts this year, down from 4. As a result, the odds of a June cut fell below 50%.
Meanwhile, the situation in Canada is quite different. Tuesday’s data revealed a significant drop in inflation. Significantly, annual inflation fell to 2.8%, while core figures hit a two-year low. This was a major departure from the US. After the report, the odds of a June rate cut by the Bank of Canada rose from 50% to 75%.
Canada’s economy is weakening. Therefore, if the BoC delays tapering beyond June, it could further hurt the economy. However, if they cut before the Fed, it could significantly weaken the Canadian dollar and negatively impact the economy.
USD/CAD Key Events Today
- Federal funds rate
- Economic projections of the FOMC
- FOMC statement
- FOMC press conference
USD/CAD Technical Price Analysis: Bearish Gutler Signals Reversal
On the technical side, the bias for USD/CAD is bullish as the price rose to retest the key resistance level of 1.3600. At the same time, it is trading well above the 30-SMA with an RSI above 50, a sign that the bulls are in the lead. The bulls took control when the price failed to trade below the key support level of 1.3450. They pushed above the 30-SMA and resistance at 1.3525, making higher highs and lows.
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However, price action at the key 1.3600 level indicates that the bears could soon take over. Price formed a bearish candle which could lead to a break below the 30-SMA to retest the support level at 1.3450.
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