- Canada’s annual inflation declined more than anticipated to 1.6% in September.
- Market players increased the probability of a 50-bps rate cut from 50% to 74%.
- Traders are looking forward to the US retail sales report for additional insights into the economy’s status.
The USD/CAD price analysis indicates a minor pullback, with fundamentals supporting further increases. The Canadian dollar hovers near a 10-week low following inflation results that were lower than projections. In contrast, the USD remains robust, bolstered by heightened expectations for a minor Fed rate reduction in November.
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Canada’s annual inflation has dropped more than expected to 1.6% in September, increasing the chances of a substantial rate cut from the Bank of Canada in October. The central bank has recently focused on fostering growth while also expressing concerns that inflation may decrease excessively. Consequently, there’s significant pressure to reduce borrowing costs.
Following the CPI report, market participants elevated the chances of a 50-bps rate cut from 50% to 74%. The loonie has experienced a sharp decline over the past few weeks due to a strengthening dollar and falling oil prices.
Oil prices plummeted on Tuesday after reports indicated that Israel may not target Iranian oil. Previously, oil had surged amidst escalating tensions in the Middle East; however, as tensions have subsided, the premium on oil has dissipated.
Meanwhile, the dollar has remained stable as market participants adjust to the revised outlook for Fed rate decreases. Notably, policymakers have adopted a more cautious stance, with some anticipating only one more rate reduction this year. Traders are now awaiting the US retail sales report for a clearer understanding of the economy’s condition, as this report will influence rate cut expectations.
USD/CAD key events today
Market participants do not foresee high-impact data being released from either the US or Canada today. Therefore, they will continue to digest the new expectations regarding BoC rate cuts.
USD/CAD technical price analysis: Bears triggered by RSI divergence
From a technical perspective, the USD/CAD price has pulled back after facing resistance at the 1.3825 level. This retreat follows a significant bullish rally that demonstrated weakening momentum when the RSI displayed a bearish divergence. Nonetheless, the bullish outlook remains as the price continues to trade above the SMA and the RSI stays above 50.
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Thus, the price may find support at the SMA before potentially moving upward again. A breakout above 1.3825 would validate the continuation of the bullish trend. Conversely, if the bulls fail to achieve a higher high, bears could take control with a break below the SMA.
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