- Data from the US last week indicated higher-than-expected inflation in the country.
- Investors have pushed back the possible timing of the Fed’s first tapering to July or September.
- Canada’s economy is deteriorating due to high borrowing costs.
There is more upside potential in the USD/CAD forecast as the Canadian dollar hovers near a five-month low hit on Friday last week. Economic indicators from the US and Canada supported the growth of the USD/CAD pair as they show a widening divergence in the monetary policy outlook.
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Data from the US last week indicated higher-than-expected inflation in the country. Accordingly, the Fed is likely to wait and watch, keeping interest rates high. Moreover, investors have moved the time for the first reduction to July or September.
Meanwhile, Canada’s economy is deteriorating due to high borrowing costs. At the same time, inflation was significantly reduced. Higher interest rates had a greater negative impact in Canada than in the US. Therefore, there is little to prevent the Bank of Canada from starting to cut interest rates in June. Markets have almost a 50% chance that the BoC will cut in June. Consequently, interest rates may fall in Canada sooner than in the US. This has put the Canadian dollar in a weak position compared to the US dollar.
Furthermore, investors expect retail sales data from the US to show the state of consumer spending. More upbeat data would widen policy differences between the Fed and the Bank of Canada.
Meanwhile, oil prices fell on Monday despite Iran’s attack on Israel over the weekend. Namely, Israel said that the attack caused minor damage.
USD/CAD Key Events Today
- US Core retail m/m
- Empire State Manufacturing Index
- USA retail m/m
USD/CAD Technical Forecast: Bullish momentum above 1.3700
On the technical side, the USD/CAD price is in a strong bullish trend. This trend comes after the price broke out of its shallow bullish channel. A break above the channel resistance indicated that the bulls are ready to make bigger swings above the 30-SMA. At the same time, it indicated an increase in bullish momentum as the RSI rose to the overbought region.
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Currently, the price is located between support at 1.3700 and resistance at 1.3800. Given the firm bullish bias, it could soon hit a resistance level.
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