- Investors are eagerly awaiting Tuesday’s Canadian inflation report.
- For April, economists expect inflation in Canada to fall to 2.8%.
- Fed policymakers remained cautious despite falling inflation.
The USD/CAD outlook paints a bearish picture, with the Canadian dollar in a strong position ahead of Canadian inflation numbers. At the same time, investors are still digesting the US inflation report, which showed a drop in inflation in April.
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Investors are eagerly awaiting Tuesday’s Canadian inflation report, which will provide insight into the Bank of Canada’s outlook for interest rate cuts. The latest report showed an annual inflation rate of 2.9%, giving policymakers confidence that it will meet the central bank’s target. For April, economists expect that figure to drop to 2.8%.
Lower inflation in Canada would bolster bets that the BoC will start cutting interest rates in June. This is well before the Fed, which could implement its first tapering in September. This prospect has contributed to the currency’s decline this year. Namely, the Canadian dollar has lost 2.7% of its value against the dollar since the beginning of the year.
However, BoC policymakers are undeterred by the fact that a divergence with the Fed could weaken their currency. According to BoC Governor Tiff Macklem, it would take a lot for the loonie to weaken to the point where it would increase inflation in Canada.
Meanwhile, Fed policymakers remain hesitant to agree on a timing for the first tapering. While there is consensus that the next move will be tapering, caution remains despite last week’s poor consumer inflation report.
USD/CAD Key Events Today
There are no key economic reports coming out of the US or Canada today. Therefore, investors will likely continue to speculate ahead of the Canadian inflation report.
Technical Outlook USD/CAD: Challenging strong support at 1.3600.
On the technical side, the USD/CAD price paused at the 1.3600 support level. Furthermore, the bias is bearish as there is a break below the 30-SMA resistance line and the RSI is in bearish territory below 50. The price recently broke below 1.3650, which is a strong support level. It is now trading with the nearest support at 1.3600 and the nearest resistance at 1.3650.
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The recent break at 1.3600 shows that the bulls could take control. If this happens, the price could consolidate in the 1.3600-1.3650 range before continuing the downtrend. It could also make a deeper pullback to retest the resistance trendline before making new lows.
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