- The USD/CAD forecast indicates a brief rebound in the pair ahead of policy meetings.
- US retail sales rose by 0.6%, well above the estimate of a 0.2% increase.
- Data from Canada showed that inflation eased by 0.1%.
The USD/CAD forecast indicates a brief rebound in the pair ahead of central bank meetings in Canada and the US. The recovery came after downbeat inflation figures from Canada and upbeat retail sales numbers from the US.
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The dollar recovered slightly against the Canadian dollar on Tuesday after data revealed robust consumer spending in the US. Retail sales rose by 0.6%, well above the estimate of a 0.2% increase. It reflected some resilience in the US economy despite a weak labor market. Nevertheless, it was not enough to dampen Fed rate cut expectations.
At the same time, data from Canada showed that inflation eased by 0.1%. Meanwhile, economists had expected no change. The report reinforced bets that the Bank of Canada will resume its monetary easing.
Notably, both the Bank of Canada and the Fed will meet on Wednesday. Markets expect the BoC to cut rates by 25 bps to support an economy that has shown weakness, especially in the labor market. However, policymakers will likely not be as dovish as Fed officials.
The Fed remains behind the curve in lowering borrowing costs. Moreover, the US labor market has shown sudden weakness, which could pressure the central bank to adopt a more dovish tone. Meanwhile, traders are almost entirely pricing a 25-bps move.
USD/CAD key events today
- Bank of Canada policy meeting
- Fed policy meeting
USD/CAD technical forecast: Decline pauses at the 1.3750 key support
On the technical side, the USD/CAD price has punctured the 1.3750 support and is threatening to push below the level again. It trades far below the 30-SMA, with the RSI near the oversold region, suggesting solid bearish momentum. The price has fallen sharply since it broke out of its bullish channel.
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After such a sharp drop, bears are facing the 1.3750 key support level. At the same time, bulls have made a brief comeback. If bearish momentum remains strong, the price will likely break below this level to continue the decline. Such an outcome would clear the path for USD/CAD to retest the 1.3651 key level.
On the other hand, if bulls return at the current support, the price will likely bounce higher to retest the 30-SMA resistance. If it holds firm, bears will resume the decline. Meanwhile, a break above the SMA would signal a shift in sentiment.
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