USD to CAD Price Forecast: Fed’s Decision Could Drive Breakout of Trading Range

Highlights

• USD to CAD consolidates ahead of crucial Fed decision.
• Resilient US economy supports the USD amidst rate hikes.
• Uncertainty surrounds further rate increases by the Fed.

Overview

The USD to CAD currency pair has been consolidating within a two-week range as traders eagerly await crucial policy decisions from the U.S. Federal Reserve. The Federal Open Market Committee (FOMC) is set to announce its verdict at 18:00 GMT, and this decision is expected to have a significant impact on the currency pair’s direction.

One of the factors supporting the USD is the signs of a resilient U.S. economy, despite the FOMC’s series of steep interest rate increases. U.S. consumer confidence reached a two-year high in July, reflecting a strong economy buoyed by a tight labor market and receding inflation.

Market sentiment indicates a high probability of a quarter-point interest rate hike by the Federal Reserve. However, opinions are divided on the possibility of further rate increases later in the year. This uncertainty has left traders in a state of flux, with the likelihood of another rate hike being compared to a coin toss.

The trajectory of USD to CAD could also be influenced by how Fed Chair Jerome Powell perceives the current economic conditions. If Powell emphasizes that the FOMC decision is “data dependent” due to the deceleration in underlying inflation, it may exert downward pressure on the USD to CAD exchange rate.

Earlier in the week, commodities and some commodity currencies, including the Canadian dollar, experienced a surge after China signaled more stimulus to support their struggling recovery. However, this failed to break the Canadian dollar out of its two-week range. Despite Canada’s largest export, oil, witnessing increased prices, the Canadian dollar remained range-bound in the past few days.

The current range for USD to CAD stands between 1.3150 to 1.3250. Depending on the risk appetite post-FOMC decision, the Canadian dollar could weaken towards the 1.3000 level. Conversely, a hawkish surprise from the Fed could support an initial move above 1.3250, with 1.34 acting as short-term resistance.

As traders keep a close eye on the U.S. Federal Reserve’s decisions and their impact on the USD to CAD exchange rate, the market remains poised for potential shifts in direction based on economic data and the FOMC’s statements.

Technical Analysis

The USD to CAD market sentiment remains slightly bearish as the current 4-hour price of 1.3206 tests the main resistance area between 1.3214 to 1.3232. The price is below both the 200-4H and 50-4H moving averages (1.3466 and 1.3315, respectively), indicating a downtrend. The 14-4H RSI reading of 47.41 suggests weaker momentum.

While the market is challenging the main resistance, traders should monitor price action closely to determine if a breakout will occur. The main support area lies at 1.3118 to 1.3142. Overall, caution is advised as the market shows signs of hesitation and potential volatility.