- The BoJ kept rates on hold on Friday and gave no clear guidance on future rate hikes.
- Market participants estimate a 49% chance of another big Fed tapering in November.
- Canadian sales jumped more than expected in July.
USD/CAD forecast shows return of dollar bulls after disappointing Bank of Japan policy meeting. Accordingly, the Canadian dollar gave up some of last week’s gains when sales data revealed resilient consumer spending.
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The Bank of Japan kept interest rates on hold on Friday and gave no clear guidance on future rate hikes. As a result, investors were disappointed, causing the yen to fall. This, in turn, boosted the US dollar, which rose against most other companies.
The rally lifted the greenback from lows hit after the FOMC policy meeting. The US central bank cut borrowing costs by 50 basis points, beating forecasts by 25 basis points. Moreover, policymakers are predicting more interest rate cuts, with market participants predicting a 49% chance of another big cut in November. The dollar could come under more pressure if the Fed continues its aggressive easing. However, this will depend on incoming data, which could change the outlook.
Meanwhile, the Canadian dollar hit new highs on Friday after data showed Canadian sales jumped more than expected in July. In particular, retail sales rose by 0.9% compared to economists’ forecast of 0.6%. The data eased concerns that the economy was in rapid decline.
However, this has had little impact on rate cut expectations. The Bank of Canada could increase the size of its rate cut after the Fed’s massive tapering.
USD/CAD Key Events Today
- US manufacturing PMI
- US flash services PMI
USD/CAD Technical Forecast: Bulls reject channel support
On the technical side, the USD/CAD price is jumping higher after meeting the support of its bullish channel. The price recently had a sharp decline after meeting channel resistance. However, it stalled at support and is now looking up. The RSI is trading just above 50, supporting bullish momentum.
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However, the price is still on the downside of the 30-SMA, which is a big challenge. However, since the price has been on a shallow uptrend, it could soon break above the SMA and resistance at 1.3600 to revisit the 1.3650 level. On the other hand, if the SMA holds firm, the bears could break out of the bullish channel and reverse the trend.
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