- Recent data has heightened expectations for a significant BoC rate reduction.
- Oil prices have recently declined amidst escalating tensions in the Middle East.
- The US dollar gained strength on Monday as traders anticipated a potential Trump victory in November.
The outlook for USD/CAD indicates a gradual increase as speculation grows around a substantial BoC rate cut scheduled for Wednesday. Concurrently, the dollar has strengthened as market sentiment leans towards a Trump win in the upcoming election.
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Recent data has reinforced the likelihood of a significant BoC rate cut. Specifically, Canada’s inflation rate has unexpectedly dropped to 1.6%, intensifying the pressure on the central bank to reduce interest rates. Additionally, Canada’s economic situation has worsened due to elevated interest rates, leading markets to estimate a 90% chance of a 50-bps rate cut from the BoC this Wednesday.
Meanwhile, the Loonie showed minimal reaction to reports about China implementing funding initiatives to stabilize its stock market. Such economic stimulus measures in China are generally positive for oil demand. Nonetheless, oil prices have recently fallen amidst rising Middle East tensions, contributing to a decline in the CAD.
On another front, the US dollar rebounded on Monday as market players factored in a likely Trump win in November. With the presidential election approaching, traders are increasingly convinced of Trump’s comeback, boosting the dollar due to potential policies that could lead to higher inflation. This scenario could complicate the Fed’s ability to continue lowering interest rates and might even prompt a policy shift that favors the dollar.
Furthermore, US data reflects a resilient economy, altering expectations for Federal Reserve rate cuts. Market projections now anticipate a gradual easing process, indicating a 95% probability of a 25-bps cut in November.
Key USD/CAD Events Today
No major events are scheduled in the US or Canada today, suggesting that the pair may continue its upward trend.
USD/CAD Technical Outlook: Bullish Momentum Dwindling
From a technical perspective, USD/CAD is currently testing the resistance level at 1.3825. The pair is trading above the 30-SMA, and the RSI is nearing the overbought territory, which suggests a bullish sentiment. However, there are indications that bullish momentum may be waning.
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In particular, the recent breach of the 30-SMA suggests an increase in bearish momentum. Additionally, the RSI shows lower highs, signaling a decline in bullish vigor. Thus, if the price cannot surpass the 1.3825 resistance, a downward reversal may occur.
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