- The Bank of Canada made its second interest rate cut on Wednesday.
- Investors are pricing in a 70% chance the BoC will cut rates in September.
- US inflation rose modestly, in line with forecasts.
The USD/CAD forecast shows a solid uptrend as the Canadian dollar continues to decline, driven by increased expectations for a BoC interest rate cut. In addition, the loonie remains weak due to falling oil prices.
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The Canadian dollar had a bearish week after the Bank of Canada implemented its second rate cut on Wednesday. Moreover, the central bank has indicated that there will be more cuts if inflation continues to ease.
Analysts believe Canada’s central bank is now focused on boosting growth. Significantly, high rates have hurt demand in the Canadian economy. As a result, there is a lot of pressure to reduce borrowing costs and support the economy. Accordingly, investors estimate a 70% chance that the BoC will cut rates in September.
At the same time, oil prices fell last week, hurting Canada’s commodity currency. Due to China’s weak economy, demand concerns were the primary catalyst for the move. Furthermore, Israel and Hamas have taken steps towards a ceasefire that would reduce the risk of an escalation of war.
Meanwhile, Friday’s data showed US inflation rising modestly, in line with forecasts. As a result, there was little impact on Fed rate cut expectations. Markets still expect the first rate cut in September. However, when policymakers meet this week, they may urge caution as the economy remains robust. However, they could signal a more dovish outlook as inflation moves towards the 2% target.
USD/CAD Key Events Today
Investors are not expecting high-impact economic reports from the US or Canada today. Therefore, the pair could extend last week’s rally.
USD/CAD Technical Forecast: Double Top and Bearish Divergence
On the technical side, the USD/CAD price slowed down near the key level of 1.3850. However, the bullish bias remains intact, with price above the 30-SMA and RSI above 50. The uptrend continued for a long time without pulling back to retest the SMA. Therefore, the bulls must be exhausted.
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As a result, the bears started making strong candles below the 1.3850 level. At the same time, the price made a double top with a bearish RSI divergence, indicating weakening momentum that could lead to a bearish reversal. However, the bullish trend will continue if the price breaks above 1.3850.
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