- The Bank of Canada cut borrowing costs by 25 basis points to 4.5%.
- Canadian factory sales fell 2.6% in June.
- The US composite PMI rose to 55.0, indicating strong business activity.
The USD/CAD outlook shows strong bullish sentiment as the Canadian dollar falls near a three-month low following a second rate cut by the Bank of Canada. Moreover, the central bank has hinted at further easing if inflation continues to cool.
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The Bank of Canada cut borrowing costs by 25 basis points to 4.5% on Wednesday. This was the second rate cut after it became the first major central bank to cut rates in June. The latest inflation data was softer than expected, weighing on the economy. Therefore, Canada’s central bank had every reason to cut rates. If this trend continues, there will be another rate cut soon. In particular, there is a 50% chance that the BoC will cut borrowing costs in September.
Elsewhere, data showed Canadian factory sales fell 2.6% in June. This is another sign of weak demand that will encourage policymakers to continue the cycle of rate cuts.
Meanwhile, in the US, investors are still expecting the first rate cut in September. However, economic reports continue to show resilience that could make policymakers cautious. Data on Wednesday showed the US composite PMI rose to 55.0, indicating strong business activity. This followed another upbeat report last week, which showed better-than-expected sales.
The next economic indicator is the GDP estimate for the second quarter. Economists expect greater expansion in Q2 than in Q1, further underscoring economic resilience. After that, the core PCE report will show the state of inflation on Friday.
USD/CAD Key Events Today
- US GDP growth q/q
- US unemployment claims
USD/CAD Technical Outlook: Bulls are advancing with the 1.3850 level in sight
On the technical side, the USD/CAD price continued its growth, breaking the resistance level at 1.3800. The bulls are now looking at the key level of 1.3850. However, the price went well above the 30-SMA without a pullback. At the same time, the RSI is trading in the overbought region, which is the extreme for bullish momentum.
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Therefore, USD/CAD could soon pause or pull back to retest the 30-SMA before resuming the uptrend. However, if the bulls continue to be strong, they will break the 1.3850 level without a break.
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