- The EIA updated its demand growth forecasts to project a more positive outlook.
- A larger-than-expected drop in US crude inventories signaled rising demand.
- Investors are positioning for the US CPI report and the Fed meeting.
The USD/CAD outlook is bearish, with the Canadian dollar benefiting from an improved oil demand outlook. Meanwhile, the US dollar has paused its recent gains as investors await the upcoming consumer inflation report and Fed meeting.
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On Wednesday, the Canadian dollar led the way, with oil rising as the EIA updated its demand growth forecasts to predict a more positive outlook. At the same time, a larger-than-expected drop in crude oil inventories signaled rising demand.
Meanwhile, the dollar retreated slightly after hitting a four-week high in the previous session on subdued expectations of a Fed rate cut. Last week’s jobs report showed a still-tight labor market that is likely to prevent the central bank from signaling an early rate cut. As a result, there is only a 56% chance of a cut in September, down significantly from around 77% a week ago.
Furthermore, the dollar’s retreat comes as investors position themselves for the US CPI report and the Fed meeting. If the inflation report confirms that demand remains strong in the economy, the dollar will strengthen as expectations of a rate cut decline. On the other hand, if it shows a slowdown, the dollar will collapse as bets on a rate cut increase.
Markets will then pay attention to the Fed’s projections for growth and inflation. This will provide clues as to when the central bank may be ready to start reducing borrowing costs.
USD/CAD Key Events Today
- US Consumer Price Index
- FOMC Policy Meeting
- FOMC press conference
USD/CAD Technical Forecast: Bulls pause rally for temporary pullback
On the technical side, the USD/CAD price stopped its rally near the 1.3780 resistance level and is pulling back to retest the 30-SMA support. This move comes after the bulls broke out of the bearish channel and took control, so the bullish bias is strong.
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As such, the price is likely to find support soon and continue to rise. Notably, there is support at the 30-SMA, the 1.3720 level and the recently broken channel resistance. Accordingly, there is a good chance that the price will jump higher to seek a new high above 1.3780.
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