- The US dollar has appreciated recently due to a change in expectations for Fed policy.
- The Loonie fell sharply as oil prices dropped by 3%.
- Traders are preparing for the upcoming inflation data from Canada.
The USD/CAD outlook indicates fundamentals that favor further gains for the pair. Fed officials have adopted a more cautious stance in light of positive data, strengthening the dollar. Concurrently, the Loonie is declining alongside oil prices due to concerns over demand and reduced supply fears.
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The US dollar’s value has increased against the Canadian dollar recently, influenced by a shift in Fed policy expectations. Recent US data showcased a resilient economy, with inflation exceeding forecasts for September. This prompted market participants to consider a slight chance of an interest rate pause in November.
In parallel, officials have made cautious comments regarding potential rate cuts. Both Christopher Waller and Neel Kashkari emphasized that the Fed should proceed carefully, contrasting with September’s decision, which saw a 50-bps rate cut.
The Canadian dollar experienced a significant drop as oil prices fell 3% on Tuesday, following reports from China indicating a reduction in oil imports for September. Additionally, market participants expressed disappointment over recent measures aimed at stabilizing China’s fragile economy. Supply concerns diminished after Israel mentioned it might refrain from striking Iranian oil, following weeks of oil price increases due to fears of retaliation after Iran attacked Israel with over 200 missiles.
In other news, traders are getting ready for Canada’s inflation data release. Economists anticipate that inflation figures will remain unchanged from the previous month, leading to a potential decline of 0.2% in the monthly figure. A larger-than-anticipated drop could strengthen expectations for Bank of Canada rate cuts, further weakening the CAD.
Key USD/CAD Events Today
- Canada CPI m/m
- Canada Median CPI y/y
- Canada Trimmed CPI y/y
USD/CAD Technical Outlook: Rally Surpasses the 1.3800 Level
From a technical perspective, the USD/CAD price has reached the significant 1.3800 level and is trading well above the 30-SMA. Additionally, the RSI has remained in the overbought territory for a considerable time, indicating strong bullish momentum.
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While the bullish sentiment remains strong, the price has been on an upward trend for an extended period without any notable retracements. Furthermore, the RSI has exhibited a bearish divergence, suggesting that buying pressure could be waning and a pause may be imminent before any further increases. As a result, a retracement to the 30-SMA or the 1.3700 support level may occur soon.
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