- The dollar strengthened on Tuesday after US inflation data beat forecasts.
- Annual inflation in the US increased by 3.2%.
- Oil fell on Tuesday following a forecast of higher-than-expected US oil production.
USD/CAD price analysis reveals a subtle bullish bias on Wednesday in response to the dollar’s recovery following an upbeat inflation report. At the same time, the Canadian dollar is struggling with weakened strength amid falling oil prices.
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The dollar strengthened on Tuesday after US inflation data beat forecasts. Annual inflation rose by 3.2%, which was higher than economists had forecast for an increase of 3.1%. Meanwhile, the monthly figure rose by 0.4%. Accordingly, there was a decline in rate cut expectations. There is currently a 67% chance of a rate cut at the June meeting. This is down from 71% before the inflation report.
The Fed will only be confident enough to start cutting rates once inflation has steadily declined. However, if inflation remains stubbornly above the 2% target, this could lead to more delays in rate cuts.
Investors will now wait to assess the US retail sales report, which shows the state of consumer spending. Retail sales remained largely resilient despite higher interest rates. So there is a chance that this trend will continue. If that happens, bets on a June cut could fall further.
Meanwhile, the Canadian dollar weakened amid falling oil prices. Canada is a significant oil exporter. Thus, falling oil prices lead to a weaker currency. Notably, oil fell on Tuesday following a forecast of higher-than-expected US oil production. Higher production in the US leads to an increase in supply, which affects oil prices.
USD/CAD Key Events Today
USD/CAD Technical Price Analysis: Pause After Retesting Channel Support
On the technical side, USD/CAD paused on recently broken channel support. Bears and bulls are fighting for control at this level. However, there is a better chance that the bears will win as the indicators support further decline of the pair.
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Notably, the 30-SMA remains bearish as bulls struggle to push the price higher. Meanwhile, the RSI is trading just below 50 in bearish territory. If the bears win the battle and make a lower low below the key support level of 1.3450, it will confirm a channel breakout and a new downtrend. Furthermore, the price is likely to fall to retest the 1.3375 support level.
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