- The Canadian dollar remained muted ahead of key inflation data.
- Canadian price pressures could cool from 2.5% in July to 2.1% in August.
- The dollar is under pressure as market participants increasingly bet on a major rate cut.
The USD/CAD outlook shows indecision as investors await key events in Canada and the US. Canada is set to release significant inflation data, providing more guidance on the Bank of Canada’s next policy move. Meanwhile, market participants are eagerly awaiting the Fed’s policy meeting on Wednesday.
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Most major U.S. companies rose from Friday on heightened expectations of a rate cut by the Fed. However, the Canadian dollar remained muted ahead of key inflation data. The Bank of Canada has cut interest rates three times since June. Furthermore, policymakers have shown a willingness to increase the size of the cuts depending on economic performance.
Inflation in Canada has decreased significantly and is approaching 2%. Economists predict that today’s CPI report will show a cooling of price pressures from 2.5% in July to 2.1% in August. Such an outcome would give the BoC more room to continue lowering borrowing costs, which weighs on the Canadian dollar.
On the other hand, the dollar is under pressure as market participants increasingly bet on a reduction in interest rates. As of Friday, the probability of a 50 basis point rate cut has risen to 59%. However, there is still a high chance of a smaller cut. As a result, traders await the US retail sales report for more clues on the size of the first cut.
USD/CAD Key Events Today
- Canada CPI m/m
- Canada mediates CPI i/i
- Canada reduced CPI y/y
- US Core Retail m/m
- USA retail m/m
USD/CAD Technical Outlook: Consolidation below 1.3600
On the technical side, the USD/CAD price is trading in a tight range between the 30-SMA and the 1.3600 resistance level. However, the bias remains bullish, with price above the SMA and RSI above 50. The bulls took control when the previous downtrend paused at the 1.3450 support level.
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However, the bullish trend stalled below the key psychological level of 1.3600. There is a good chance that the price will break through this resistance soon as the bullish momentum is still strong. However, if the bears take over, it will break below the SMA to target the 1.3450 support level.
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