- The Canadian dollar strengthened as risk sentiment improved.
- Economists expect inflation in Canada to decrease from 2.7% to 2.5% in July.
- Traders will focus on Powell’s speech at the end of the week for guidance on the Fed’s outlook.
USD/CAD price analysis tilts south as the Canadian dollar trades near a five-week high amid improved risk sentiment. At the same time, investors await Canada’s inflation report, which could shape the outlook for a BoC rate cut.
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The Canadian dollar rallied on Tuesday, making new highs as risk sentiment improved. The loonie gained on US stocks on optimism about the US economy. Last week, data dismissed fears that the US economy was on the brink of recession. At the same time, expectations of a Fed rate cut improved the outlook for the economy, supporting Wall Street and the Canadian dollar.
Meanwhile, investors are eagerly awaiting Canada’s inflation report for more clues on the Bank of Canada’s rate cut outlook. Economists expect inflation to decrease from 2.7% to 2.5% in July. The Bank of Canada has already implemented two rate cuts. If inflation continues to cool, the central bank could cut again in September.
On the other hand, the US dollar was weak as markets increasingly bet on a Fed rate cut in September. Inflation data last week met expectations, showing a gradual decline to the Fed’s 2% target. As such, policymakers may be ready to signal a rate cut in September.
Traders will focus on Powell’s speech at the end of the week for guidance on the Fed’s outlook. Additionally, the minutes from the FOMC meeting will show policymakers’ stance on rate cuts and inflation.
USD/CAD Key Events Today
- Canada CPI m/m
- Canada mediates CPI i/i
- Canada reduced CPI y/y
USD/CAD Technical Price Analysis: Strong bearish momentum heading for support at 1.3601
On the technical side, the price of USD/CAD fell sharply after retesting the 30-SMA and breaking below the 1.3700 support level. The 30-SMA is well above the price and pointing downwards, indicating a steep downtrend. Meanwhile, the RSI fell below 30 into oversold territory.
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Given the solid bearish bias, the decline could soon challenge the 1.3601 support level. If the level remains firm, the price will pull back to retest the 30-SMA or its bearish trend line. On the other hand, if the level eases, USD/CAD will make new lows, continuing the downtrend.
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