USD to CAD Price Forecast: Trends Upward Despite Rating Agency Downgrade

Highlights

• USD to CAD rises despite Fitch’s credit rating downgrade.
• Investors seek safety in the US Dollar and government bonds.
• U.S. economic data and Fed policy remain in focus.

Overview

The USD to CAD exchange rate saw an upward trend on Wednesday despite Fitch’s credit rating downgrade for the United States. This move came after Fitch maintained its position on the possibility of a downgrade in June, following the resolution of the debt ceiling crisis. The downgrade, which lowered the U.S. credit rating to AA+ from AAA, marks the second major rating agency to strip the nation of its triple-A rating, raising concerns among investors and drawing an angry response from the White House.

Downgrade Spurs Investors to Safe-Havens

One immediate consequence of the downgrade was a shift in investor sentiment towards safe-haven assets. Traders turned to government bonds and the dollar, seeking refuge from the uncertainties in the market. The dollar’s status as a safe-haven currency played a significant role in its support, as global stocks experienced a decline and risk appetite waned. Despite the negative news, the demand for the dollar remained steady due to its importance for international trade and its role as a primary reserve currency.

Strong Economic Data Supports Dollar

Adding to the dollar’s support, Tuesday’s economic data revealed that U.S. job openings remained consistent with a tight labor market, even though they fell to their lowest level in over two years in June. Another report suggested a possible stabilization of U.S. manufacturing, albeit at weaker levels. These factors contributed to the dollar’s resilience amid the credit rating downgrade.

Investors Await Key Jobs Data

Investors are also closely monitoring upcoming economic data that could shed light on the future of the U.S. economy and monetary policy. ADP’s employment change report for July is due on Wednesday, with economists projecting a modest increase of 175,000 jobs, considerably lower than June’s 497,000 jump. The figures from this report and subsequent labor market reports could have an impact on the Federal Reserve’s decisions regarding interest rates and monetary policy. The central bank has been steadily raising interest rates since early 2022 to combat inflation and regulate economic growth, and any future policy shifts will be data-dependent, as signaled by Fed officials.

Short-Term Forecast:  Higher Despite Treasury Downgrade

In conclusion, despite the credit rating downgrade, the USD to CAD rate edged higher as the dollar held its ground as a safe-haven currency. The market’s focus now turns to key economic data and the Federal Reserve’s next policy moves, which will be influenced by the evolving economic landscape. Investors remain attentive to indicators that could provide insight into the U.S. economy’s trajectory and the central bank’s future actions.

Technical Analysis

The USD to CAD market showed a bullish sentiment as the current price of 1.3306 remained above both the 200-4H and 50-4H moving averages at 1.3216. The 14-4H RSI reading of 64.81 indicated a relatively strong position.

The main support area at 1.3118 to 1.3142 provided additional confidence in the market’s bullishness.  The main resistance area at 1.3360 to 1.3384 could pose challenges for further upside movement. Overall, the market appears to lean towards a bullish outlook.