USD/CAD forecast: signal ahead of the BoC decision, US NFP data

The USD/CAD exchange rate moved sideways as traders waited for the upcoming Bank of Canada (BoC) decision and nonfarm payrolls (NFP) data. It was trading at 1.3637, down from the year-to-date high of 1.3847. 

Bank of Canada decision

The USD/CAD pair will be in the spotlight this week as investors focus on the upcoming BoC interest rate decision.

Most economists believe that the bank will slash rates for the first time in years. The base case is that it will cut them from 5.0% to 4.75% as it works to supercharge an economy that is slowing down.

The most recent economic numbers revealed that Canada’s inflation continued dropping in April. It dropped to 2.7% in April from a peak of 8.1% in 2022. Most importantly, the core CPI, which excludes the volatile food and energy prices, dropped to 1.6% in April, down from 6.2% in 2022.

The core CPI has moved to below the Bank of Canada’s target of 2.0%. At the same there are signs that the Canadian economy has slowed down sharply in the past few quarters. 

The economy expanded by just 0.53% in the first quarter, down from 0.93% in the fourth quarter of 2023. It has been slowing down after peaking at 12.7% in the second quarter of 2022.

The country’s unemployment rate has moved to 6.1%, its highest level since January 2022. Further, most Canadians are seeing elevated housing costs. Therefore, by cutting interest rates, the BoC will hope to boost the economy.

The other USD/CAD news to watch will be the upcoming US jobs numbers. The Bureau of Labor Statistics (BLS) will publish the latest JOLTS jobs numbers on Tuesday while the ADP will release the latest private payroll data on Wednesday.

Further, the US and Canada will release the latest numbers on Friday. Economists expect the data to show that the nonfarm payrolls rose from 175k in April to over 185k jobs in May. The unemployment rate is expected to remain at 3.9%.

Some analysts believe that the Federal Reserve could start cutting interest rates as soon as in July since the economy is slowing. Data released on Monday showed that the US nonmanufacturing PMI dropped to 48.3 in May.

USD/CAD technical analysis

USDCAD chart by TradingView

The daily chart shows that the USD to CAD exchange rate has drifted downwards in the past few weeks. It has dropped from the year-to-date high of 1.3847 to the current 1.3635. The pair has also formed a descending channel shown in black. 

It has also moved below the Ichimoku cloud indicator and the 25-day and 50-day Exponential Moving Averages (EMA). The MACD has dropped and moved below the neutral point of zero.

Therefore, the pair will likely remain in this range ahead of the BoC interest rate decision. The key support and resistance levels to watch will be at 1.3700 and 1.3560.