- Canadian GDP rose 0.2 percent in July, compared with estimates of 0.1 percent.
- The core US PCE price index was lower than expected.
- Traders estimate a 50% chance of a big BoC cut in October.
The USD/CAD forecast shows continued weakness in the Canadian dollar due to the possibility of a significant rate cut by the Bank of Canada in October. Meanwhile, the dollar was also fragile after PCE data revealed an unexpected drop in price pressures.
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The Canadian dollar oscillated on Friday after domestic data showed better-than-expected economic growth. Canadian GDP rose 0.2 percent in July, compared with estimates of 0.1 percent. However, the currency soon reversed as market participants misjudged valuations. According to the report, the economy could grind to a halt in August. Accordingly, traders estimate a 50% chance of a massive BoC cut in October.
Meanwhile, the US dollar lost ground on Friday after the core PCE price index fell lower than expected. Notably, US inflation rose 0.1%, missing forecasts for a 0.2% rise. At the same time, the annual figure eased to 2.2%, inching closer to the Fed’s 2% target.
Inflation has been steadily declining and is likely to reach the Fed’s target soon. As a result, policymakers are confident that they have won the battle. Therefore, the Fed will not hesitate to cut interest rates. Furthermore, market participants are pricing in another 50 basis point cut in November. Such significant cuts will bring the Fed on par with other central banks that have begun easing earlier, such as the Bank of Canada.
Moreover, it will give these central banks the confidence to increase the size of their rate cuts. More rate cuts in the US will weigh on the dollar. However, as the BoC also cuts borrowing costs, the pair could consolidate.
USD/CAD Key Events Today
USD/CAD Technical Forecast: Bulls attack the 1.3500 level
From the technical side, USD/CAD price recovered above the 30-SMA. A break above the SMA indicates a change in sentiment. At the same time, the RSI broke above the 50 mark and is now trading in bullish territory.
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The bulls made a solid candle that broke above the 1.3500 resistance and the 0.382 Fib level. If this trend continues, USD/CAD will soon reach the 0.618 Fib level. However, the price must start making higher highs and lows to confirm a new bullish trend.
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