- Data from Canada revealed a smaller-than-expected 0.2% expansion in the economy.
- Investors currently have a 60% chance that the BoC will cut rates in June.
- While investors expect a 54bps cut in Canada, they expect only 32bps in the US.
USD/CAD price analysis turned bullish as data from Canada and the US underlined a widening gap in the policy outlook between the Fed and the BoC. Meanwhile, investors await the FOMC’s policy meeting.
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On Tuesday, data from Canada revealed a smaller-than-expected 0.2% expansion in the economy in February. Furthermore, Q1 growth estimates were lower than Bank of Canada forecasts. This indicates a worsening economy as businesses feel the impact of higher interest rates.
Accordingly, there are several reasons for the BoC to start cutting interest rates in June. Further delaying the rate cut cycle could do more damage to an already weak economy. Investors currently have a 60% chance that the central bank will start cutting rates in June. In addition, they expect to cut rates by a total of 54 basis points in 2024.
Meanwhile, the US economy remains resilient despite high rates. Data on Tuesday revealed warmer-than-expected growth in the nation’s employment costs. This was another sign of strength in the labor market that will keep the Fed cautious about cutting rates. While investors expect a 54bps cut in Canada, they expect only 32bps in the US. Moreover, this figure could change after the FOMC policy meeting.
Once the Fed decides on policy, it will likely keep interest rates higher. Additionally, they may be more hawkish than they have been in the past, given recent upbeat economic data. The Fed will keep rates high as long as inflation remains above target.
USD/CAD Key Events Today
- Private employment in the USA
- US ISM manufacturing PMI
- US JOLTs job openings
- FOMC meeting
- BoC Macklem speaks
USD/CAD Technical Price Analysis: Price is making a strong reversal after the bullish RSI divergence
On the technical side, the USD/CAD price made a sharp bullish reversal by breaking above the 30-SMA resistance. This comes after the RSI showed weakness in the previous bearish trend with a bullish divergence. Currently, the RSI is in the overbought region, supporting solid bullish momentum.
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However, after such a sharp move where the price only made bullish candles, the bears may appear for a brief pause before the uptrend resumes. The next target for this uptrend is at 1.3840.
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