- The USD/CAD pair experienced a sharp increase in October.
- Inflation in Canada has notably decreased, heightening expectations for a significant rate cut by the Bank of Canada.
- Oil prices surged due to a better demand outlook in China.
The outlook for USD/CAD indicates potential profit-taking following a robust rally, with the pair retreating ahead of the important Bank of Canada policy meeting. Meanwhile, the Canadian dollar gained ground as oil prices rose on improved expectations for demand.
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The USD/CAD pair saw a significant rebound in October, primarily driven by a stronger US dollar. Concurrently, expectations for a rate cut from the Bank of Canada have led to a decline in the Canadian dollar.
The US dollar saw an upswing as it became apparent that the US economy remains robust. This gives the Federal Reserve the flexibility to gradually reduce interest rates. Initially, there were concerns about a rapid economic slowdown, prompting a substantial rate cut by Fed policymakers in September. Nonetheless, they have since revised their outlook, adopting a more cautious stance, which has bolstered the dollar.
Additionally, the US dollar has gained traction owing to speculation surrounding the upcoming presidential election. At times, Trump’s lead raised concerns about inflation, while uncertainty surrounding potential outcomes pushed traders towards safe-haven assets.
Conversely, Canada’s inflation has diminished considerably, fueling speculation for a large rate cut from the Bank of Canada. Consequently, the Canadian dollar has experienced a sharp decline. However, a rise in oil prices on Tuesday provided some recovery for the loonie, attributed to improved demand prospects in China resulting from recent stimulus measures.
Key USD/CAD Events Today
- Bank of Canada monetary policy meeting
- Bank of Canada rate statement
- Bank of Canada press conference
Technical Forecast for USD/CAD: Bears Show Strength Around 1.3825
From a technical perspective, the USD/CAD price hit a new high above 1.3825 before retreating to the 30-SMA support level. Recently, bears showcased their strength as the price broke below the SMA support. However, bulls quickly regained control, achieving a new high.
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Nonetheless, the bullish momentum was weak, marked by small-bodied candles. Moreover, despite the price reaching a higher high, the RSI displayed a lower high, indicating a bearish divergence. If this divergence materializes, the price may soon drop below the 30-SMA to test the 1.3750 support level. Such a movement would signify a shift in sentiment towards bearishness.
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