USD/CAD forecast ahead of BoC decision, US inflation data

By:
on Apr 9, 2024
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  • The USD/CAD exchange rate has retreated sharply in the past few weeks.
  • The Bank of Canada will deliver its interest rate decision on Wednesday.
  • The US will publish the latest consumer inflation report.

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The USD/CAD exchange rate drifted downwards this week as traders shifted their focus on the upcoming Bank of Canada (BoC) decision, Federal Reserve minutes, and US consumer inflation data. It retreated to a low of 1.3550 on Tuesday, down from this month’s high of 1.3647.

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BoC decision, US inflation, FOMC minutes

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The USD/CAD will be in the spotlight as traders focus on the next BoC meeting. Most economists expect that the bank will decide to leave interest rates unchanged at 5%, where they have been since July last year. 

At the same time, economists expect that the bank will signal that rate cuts are coming since Canada’s inflation is pulling back. The most recent numbers revealed that Canada’s inflation retreated to 2.8% in February from 2.9% in January. This is a strong decline since the country’s inflation peaked at 8.1% in 2022.

There are also signs that Canada’s economy is slowing. A report published in February revealed that the economy expanded by 0.93% in Q4 as it narrowly avoided a recession. Also, a report published on Friday revealed that the economy shed jobs in March as the unemployment rate rose to 6.1%.

Therefore, the baseline view among most economists is that the BoC will start cutting interest rates in June this year. 

The other crucial USD/CAD news will be the upcoming US inflation report. As I wrote in my article on the US dollar index, the expectation is that the headline CPI rose from 3.2% in February to 3.4% in March. Core inflation is expected to come in at 3.7%.

If economists are accurate and since oil prices are rising, it means that the Fed may delay cutting rates this year. Jamie Dimon sees rates jumping to 8% since the inflation slowdown has eased recently.

The USD/CAD pair will also react to the upcoming Federal Reserve minutes. These minutes will provide more details about last meeting when the bank decided to leave interest rates unchanged.

USD/CAD technical analysis

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USD/CAD

USDCAD chart by TradingView

The USD to CAD exchange rate has drifted downwards in the past few days. This retreat happened after the pair retested the upper side of the ascending channel. It has also moved below the 50-period and 25-period Weighted Moving Averages (WMA).

The two lines of the Percentage Price Oscillator (PPO) have made a bearish crossover while the Relative Strength Index (RSI) has drifted downwards. Therefore, the outlook for the pair is bearish, with the next point to watch being the lower side of the channel at 1.3500. 

The alternative situation is where the pair bounces back and moves to the upper side of the channel at 1.3625.

Bank of Canada CAD USD Central Banks Economic Forex Trading Ideas