- Markets are fully pricing in a September Fed rate cut of 25 basis points following the minutes of the FOMC meeting.
- Oil prices fell on Wednesday amid growing concerns about China’s economy.
- Investors have priced in another Bank of Canada rate cut in September.
The USD/CAD forecast leans bearish, with the dollar on the back foot after the FOMC meeting minutes. Investors are more confident that the Fed will implement the first rate cut in September. At the same time, Canadian inflation data increased the likelihood of a Bank of Canada rate cut in September.
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Fed minutes released on Wednesday showed policymakers are poised to cut borrowing costs in September if data comes in as expected. This clearly indicated confidence that inflation would reach the 2% target. With inflation meeting expectations in July, investors are confident that policymakers will vote to cut rates next month. As a result, markets are fully pricing in a 25 basis point rate cut.
The focus now shifts to Powell’s speech tomorrow. If he signals a rate cut, the dollar could continue to fall, which would benefit the Canadian dollar. The CAD has strengthened significantly this week despite falling oil prices and softening inflation in Canada.
In particular, oil fell on Wednesday due to growing concerns about the Chinese economy. China’s fragile recovery has clouded the outlook for oil demand, and most experts have cut their forecasts for global demand. Still, the madman won amid the weakness of the US dollar.
Meanwhile, data on Tuesday revealed that July inflation in Canada fell to a 40-month low of 2.5%. After the report, investors moved to fully price in another rate cut by the Bank of Canada in September. However, investors have already priced in this outcome. Consequently, the data had little impact.
USD/CAD Key Events Today
- Claims for the unemployed
- Flash Manufacturing PMI
- Flash Services PMI
USD/CAD Technical Forecast: Price is oversold below 1.3601
On the technical side, the USD/CAD price is in freefall and recently broke below the 1.3601 support level. As the bears took over when the bullish trend peaked, the price was trading below the 30-SMA. At the same time, the RSI was trading below 50, supporting bearish momentum.
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At the moment, the RSI is in the oversold region, indicating extreme bearish momentum. With USD/CAD oversold, bulls could re-emerge for a pullback to retest the 30-SMA. However, the price could reach the key level of 1.3550 before that happens.
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