- Annual inflation in Canada decreased more than expected to 1.6% in September.
- Market participants increased the probability of a 50 basis point rate cut from 50% to 74%.
- Traders await the US retail sales report for better insight into the state of the economy.
USD/CAD price analysis shows a slight pullback, with fundamentals supporting further growth. The Canadian dollar traded near a 10-week low after inflation numbers came in lower than expected. Meanwhile, the dollar remained firm, with higher expectations for a small rate cut by the Fed in November.
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Annual inflation in Canada eased more than expected to 1.6% in September, increasing the likelihood of a massive October rate cut by the Bank of Canada. The Canadian central bank has recently shifted its focus to preserving growth. At the same time, policymakers are concerned that inflation could fall too far. Therefore, there is a lot of pressure to reduce borrowing costs.
After the CPI report, market participants increased the probability of a 50 basis point rate cut from 50% to 74%. The loonie has fallen sharply in recent weeks due to a strong dollar and falling oil prices.
Oil fell sharply on Tuesday after reports that Israel may not target Iranian oil. Earlier, oil rose due to the escalation of the Middle East war. However, tensions have cooled, removing the premium on oil.
Meanwhile, the dollar remained steady as market participants adjusted to the new prospect of a Fed rate cut. In particular, policymakers have taken a more cautious tone, with some expecting just one more rate cut this year. Traders await the US retail sales report for better insight into the state of the economy. Moreover, the report will affect rate cut expectations.
USD/CAD Key Events Today
Market participants today do not expect high-impact data from the US or Canada. Therefore, they will continue to digest the new prospect of a BoC rate cut.
USD/CAD Technical Price Analysis: Bears activate after RSI divergence
On the technical side, the USD/CAD price pulled back after finding resistance at the 1.3825 level. The pullback comes after a steep bullish rally that showed momentum fading when the RSI made a bearish divergence. However, the bullish bias remains intact as the price is trading above the SMA with RSI above 50.
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Therefore, it could find support at the SMA before it bounces higher. A break above 1.3825 would confirm the continuation of the bullish trend. However, if the bulls fail to make a higher high, the bears could take control with a break below the SMA.
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