- The Canadian dollar has fallen since Tuesday despite an unexpected jump in Canadian inflation.
- Inflation in Canada rose at an annual rate of 2.9% in May.
- The dollar strengthened on Wednesday as the yen fell to a new 38-year low.
The USD/CAD forecast shows slight bearish momentum as the Canadian dollar recovers from a recent slide amid falling bets on a BoC rate cut. However, the bullish trend remains, with the dollar against most currencies due to the yen’s decline.
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The Canadian dollar has fallen since Tuesday despite an unexpected jump in Canadian inflation. This is a sign that investors are more focused on the rising dollar. Namely, Tuesday’s data showed that inflation in Canada rose at an annual rate of 2.9% in May. It was a much bigger jump than expected from the previous month’s 2.7%, leading to lower rate cut expectations.
Bank of Canada policymakers were fairly confident of easing price pressures when they cut rates for the first time in June. Therefore, investors had high expectations that the central bank would cut again in July. However, after the inflation numbers, these expectations fell. This should have given the Canadian dollar a big boost. However, the dollar’s strength overshadowed Canada’s inflation surprise.
The dollar strengthened on Wednesday as the yen fell to a new 38-year low. The catalyst behind this move is the wide gap in interest rates between Japan and the US. This increased demand for the dollar compared to the yen, which weighs on other currencies such as the Canadian dollar.
The dollar rose despite poor housing data showing a drop in US new home sales. Investors are now awaiting GDP data and the PCE price index report.
USD/CAD Key Events Today
- Final US GDP q/q
- US unemployment claims
USD/CAD Technical Forecast: Price pauses at 0.786 Fib and reverses
On the technical side, the USD/CAD price failed to close below the 0.786 Fib level. Instead, it made a big fuse before reversing and breaking above the key 1.3680 level and the 30-SMA. A break above the SMA indicates a change in bullish sentiment.
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Currently, the price is pulling back to retest recently broken levels. However, as it remains above the 30-SMA with RSI above 50, there is a good chance that the bullish move will continue. Accordingly, USD/CAD could revisit the key resistance level of 1.3780.
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