- A Bank of Canada survey showed increased expectations for lower inflation.
- Investors increased the odds of a July BoC rate cut from 77% to 80%.
- In June, economists expect inflation in Canada to decrease from 2.9% to 2.8%.
USD/CAD price analysis reveals a bullish trend as the Canadian dollar weakens on increased chances of another Bank of Canada rate cut this month. Meanwhile, the dollar fluctuated on increased bets on a September Fed rate cut and a higher chance of a Trump victory.
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The Canadian dollar fell on Monday after a Bank of Canada survey showed increased expectations for lower inflation in Canada. Companies in the country expect a slowdown in input and sales prices. This means that inflation could continue to fall. As a result, investors increased the odds of a July rate cut from 77% to 80%.
However, this outlook could change significantly with Tuesday’s inflation report. The latest report showed a jump in inflation which led to a drop in expectations of a BoC rate cut. In June, economists expect the figures to decrease from 2.9% to 2.8%. A larger-than-expected decline would increase the chances of a cut this month. On the other hand, if there is another jump, the Bank of Canada could keep rates on hold this month, pushing the Canadian dollar higher.
Meanwhile, the dollar initially rose on Monday as Trump’s assassination attempt boosted his chances of winning the November election. A Trump victory would benefit the dollar. However, the move reversed when Powell spoke, pointing to growing confidence that inflation will reach the 2% target. As a result, markets went full price in September’s rate cut.
USD/CAD Key Events Today
- Consumer Price Index in Canada
- US Retail Sales Report
USD/CAD Technical Price Analysis: Bullish Momentum Pauses at 0.618 Fib
On the technical side, the USD/CAD price encountered solid resistance at the 0.618 Fib retracement level. The bulls are in control since they took over at the key 1.3600 level. However, the price has risen well above the 30-SMA and may have to pull back before continuing higher.
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If the Fib level remains strong, the price could pause or revisit the SMA. If the price stays above the SMA, the bullish trend will continue. A break above the Fib level would allow the price to reach the resistance level at 1.3750.
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