- Recent data revealed weaker-than-expected growth in Canada.
- Markets have a 75% chance the BoC will cut rates on Wednesday.
- Oil fell as traders worried about a looming increase in supply.
The USD/CAD forecast paints a bullish picture with the Canadian dollar on the back burner ahead of the BoC policy meeting, where markets believe a rate cut will follow. Meanwhile, the dollar was weak after a string of poor data and ahead of key data from the services sector.
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After months of speculation, the time has come for the Bank of Canada to decide whether to cut rates or keep them on hold. Since the beginning of the year, the Canadian economy has slowed while inflation has moved closer to the central bank’s target. As a result, there was a lot of pressure on the BoC to cut interest rates. Notably, the latest data revealed weaker-than-expected growth in Canada, increasing the chances of a cut later in the day.
Markets have a 75% chance that the central bank will cut rates. However, the focus will be on the prospect of a rate cut. Experts say the BoC will be comfortable cutting rates at least three times before the Fed.
Further pressure on the loonie came from falling oil prices. Oil fell as traders worried about a looming increase in supply once OPEC ends production cuts. At the same time, a rise in crude oil inventories weighed on sentiment.
Meanwhile, the dollar was weak after data this week raised the odds that the Fed will cut rates in September. A surprise drop in U.S. job vacancies further highlighted weakness in the labor market. Markets are still pricing in a 59% chance the Fed will cut rates in September.
USD/CAD Key Events Today
- Change in non-agricultural employment in the US ADP
- Bank of Canada Policy Meeting.
- US ISM services PMI
USD/CAD Technical Forecast: Bulls target new highs above 30-SMA
On the technical side, the USD/CAD price broke above the 30-SMA, retested and is now looking for new highs. Furthermore, the RSI is trading above the 50 level, showing strong bullish momentum.
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However, the price is still caught in a shallow, bearish channel. Therefore, the bullish move will encounter a firm barrier at the channel resistance around the 1.3720 level. It will take a strong catalyst to push the price above the channel resistance. Such a breakout would allow the bulls to retest the 1.3780 level.
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