USD to CAD Price Forecast: Traders Brace for U.S. Inflation Data, Bank of Canada Rate Decision

Highlights

• USD to CAD reaches lowest level since June 28.
• Anticipation builds for U.S. inflation data and Bank of Canada decision.
• Bank of Canada likely to raise rates amid strong growth and inflationary pressures.

Overview

The USD to CAD exchange rate is weaker on Wednesday, reaching its lowest point since June 28. This decline comes ahead of two highly anticipated events: the release of U.S. inflation data and the Bank of Canada’s interest rate decision. Traders and investors were closely monitoring the U.S. inflation figures, with expectations of a 5% increase in core consumer prices for June. These numbers would provide valuable insights into the Federal Reserve’s ongoing battle against inflation.

USD Weakens on Rate Outlook

The U.S. dollar continued its weakening trend, extending losses from earlier in the week. This decline was fueled by remarks from Federal Reserve officials indicating that the central bank is approaching the end of its monetary policy tightening cycle.

Some traders are saying that a softer U.S. inflation report has already been priced in. However, there is a risk of a “buy the rumor, sell the fact” reaction if the figures align with expectations.

At the same time, U.S. Treasury yields faced downward pressure, causing the two-year yield and benchmark 10-year yield to settle below 5% and 4% respectively. This decline in Treasury yields contributed to the weakening of the U.S. dollar, while the possibility of a rate hike by the Bank of Canada supported the Canadian dollar, also known as the Loonie.

BoC to Raise Rates Due to Strong Growth

Economists anticipate another rate hike by the Bank of Canada, given the country’s strong economic growth and tight labor market despite higher borrowing costs. This move follows the central bank’s surprising decision to resume rate hikes last month. It is widely expected that the Bank of Canada will raise its key overnight lending rate by 25 basis points to reach a level of five percent.

While this upcoming rate hike is likely to be the final one in the current cycle, there remains a possibility of further increases in the future if needed to combat persistent inflation. Recent months have shown that the Canadian economy may be less sensitive to interest rates than previously believed.

Short-Term Forecast:  Volatility Warning

In conclusion, the USD to CAD exchange rate has hit a two-week low in anticipation of significant economic events. The release of U.S. inflation data and the Bank of Canada’s interest rate decision will provide valuable insights into the direction of both economies. The Bank of Canada is expected to raise rates in response to strong growth and inflationary pressures, while the U.S. dollar remains influenced by the Federal Reserve’s tightening cycle. Traders and investors will be closely watching these developments in the coming days.

Technical Analysis

USD to CAD sentiment remains bearish as the current 4-hour price of 1.3215 is higher than the previous close. The price is below both the 200-4H and 50-4H moving averages, indicating a downward trend. The 14-4H RSI sits at 36.52, below the neutral level of 50, suggesting weakness in the market.

The market is holding within the main support area of 1.3204 to 1.3226 after failing to break through the main resistance area of 1.3360 to 1.3384. Traders should closely monitor the price action near the lower end of the support zone. A breakdown below 1.3204 could potentially trigger a further downside move, with the next potential target area around 1.3142 to 1.3118.