- Canadian inflation data met forecasts at 2.7%, down from the previous month.
- There is a 55% chance the BoC will cut rates in June.
- Fed policymakers remained cautious despite easing inflation.
The USD/CAD outlook looks bullish, driven by a weaker Canadian dollar following inflation numbers that matched expectations. At the same time, the US dollar was steady after Fed policy makers dampened hopes of a rate cut.
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On Tuesday, Canadian inflation data met forecasts of 2.7%, down from the previous month. Similarly, key measures eased, giving investors more confidence that the Bank of Canada will cut rates at its June meeting. Before the report, there was a 40% chance of a cut in June. However, after inflation figures, it rose to 56%. As a result, the Canadian dollar fell.
The Bank of Canada is edging closer to its rate cut cycle as the Canadian economy slows and prices fall. Analysts believe the central bank is ready to cut at least three times before the Fed. However, after three cuts, the outlook becomes murky as a weaker currency could add to inflationary pressures.
Meanwhile, despite inflation falling in April, policymakers remained cautious in the US. This led to a drop in Fed rate cut expectations and boosted the dollar. Fed officials revealed that he had to make such a sudden switch from hawk to dove. There is still little confidence that lower inflation will continue. Therefore, they might wait for more evidence before taking a dovish view. Still, differences in the political outlook are likely to keep the Canadian dollar weak. This weakness will increase when the Bank of Canada starts cutting interest rates.
USD/CAD Key Events Today
- Minutes from the Fed policy meeting.
USD/CAD Technical Forecast: Bulls take control but face solid resistance above
On the technical side, the USD/CAD price is trying to stay above the 1.3650 resistance level after respecting the 30-SMA support. The bulls recently initiated a change in sentiment when the price respected the key psychological level of 1.3600. Price confirmed the change when it broke above and retested the 30-SMA. At the same time, the RSI broke above 50 and is now trading in bullish territory.
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Bulls must now make a higher high to confirm a new bullish trend. However, the new trend may not go far because of the strong resistance trend line above. This trend line has caused reversals before and could do so again.
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