- Sales in Canada rose 0.4%, compared with a forecast of 0.5%.
- The US economy is doing much better than most economists predict.
- Traders are waiting for the key presidential election in the US.
The USD/CAD outlook shows an economic divergence between Canada and the US, which has pushed the pair higher. At the same time, the Bank of Canada has become more aggressive in lowering borrowing costs. On the other hand, markets expect the Fed to take a more gradual pace of rate cuts.
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The Canadian dollar weakened on Friday after domestic data showed weaker-than-expected retail sales. Sales rose 0.4% compared with forecasts for a 0.5% increase. Meanwhile, core retail sales fell 0.7% compared with estimates for a 0.3% decline. The Canadian economy continued to deteriorate, forcing the Bank of Canada to cut rates by a whopping 50 basis points.
On the other hand, the US economy is doing much better than most economists predict. Sales rose more than expected in September, and the labor market remained tight. As a result, markets are gradually pricing in the Federal Reserve’s rate cuts.
The move to more aggressive interest rate cuts in Canada last week created a slight divergence in policy between the BoC and the Fed. As a result, the outlook for USD/CAD remains bright. An aggressive cycle of rate cuts will weaken the loonie, while a gradual cycle will ultimately boost the dollar.
Meanwhile, traders await next week’s crucial US presidential election. The outcome could affect both fiscal and monetary policy in the US. Accordingly, the dollar could rally or crash. In addition, market participants will be watching US GDP and monthly employment data for more clues about the upcoming FOMC meeting.
USD/CAD Key Events Today
USD/CAD Technical Outlook: Weaker momentum
From the technical side, USD/CAD the price continued its upward trend despite weaker bullish momentum. The price recently broke above the resistance at 1.3825 and rose to the key level of 1.3901. However, indicators and price action are showing weakness in the uptrend.
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The price is holding close to the 30-SMA, which is a sign that the bulls have lost enthusiasm to make big swings. Meanwhile, the RSI has made a bearish divergence, indicating a weakening of the bullish momentum. Finally, the bears are stronger and have fueled several pullbacks to the 30-SMA. Therefore, the trend could soon reverse with a break below the SMA.
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