- Inflation in Canada fell by 0.2% month-on-month, surprising economists who had expected no change.
- The data revealed that US retail sales unexpectedly rose by 0.1%.
- The probability of a 50 bps Fed rate cut remains high at 63%.
USD/CAD price analysis shows slight bullish momentum as the Canadian dollar remains fragile following softer-than-expected inflation data. At the same time, the dollar was steady as sales data pointed to the gradual start of Fed rate cuts.
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Tuesday’s data showed inflation fell 0.2% on the month, surprising economists who had expected no change. Inflation in Canada has been steadily declining, reaching the Bank of Canada’s target. As a result, experts believe the central bank could increase the size of future rate cuts. Accordingly, the Canadian dollar could come under pressure, allowing USD/CAD to rise.
However, the upside potential for the dollar is also low as the Fed prepares to start reducing borrowing costs. The dollar rose on Tuesday after data showed US retail sales unexpectedly rose 0.1%. Economists expected sales to fall by 0.2%. The upbeat report briefly boosted the dollar, supporting the case for a small Fed rate cut on Wednesday. Still, the probability of a 50 bps cut remains higher at 63%. Market expectations changed late last week when news outlets pointed to the high likelihood of a massive rate cut by the Fed.
Moreover, market participants will focus on messages for future moves during the policy meeting. A dovish outlook could weigh on the dollar. On the other hand, a small rate cut and a cautious outlook for the future could boost the dollar.
USD/CAD Key Events Today
- Federal funds rate
- Economic projections of the FOMC
- FOMC statement
- FOMC press conference
USD/CAD Technical Price Analysis: Bulls are trying to break the consolidation
On the technical side, the USD/CAD price remained in a narrow range, slightly below the critical level of 1.3600. Although the bulls are in the lead, they are not committed to pushing the price far above the SMA. This is a sign of indecision or pausing due to exhaustion.
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The price is located slightly above the SMA with the RSI above 50. Therefore, the indicators support the bulls. An increase in momentum could push USD/CAD above the resistance level at 1.3600. A break above this level would pave the way for the price to retest the 1.3701 resistance level.
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