USD to CAD Price Forecast: Weaker on Lower US Inflation Data, Steady Canada GDP

Highlights

• USD to CAD declined on lower US inflation data.
• Canadian GDP shows steady growth, impacting currency dynamics.
• Federal Reserve’s interest rate hike addresses inflation, but target not met.

Overview

On Friday, the USD to CAD pair experienced a decline following lower-than-expected US inflation data. Simultaneously, the Canadian GDP displayed steady growth, impacting the currency dynamics. The release of the US inflation gauge, which revealed a cooling in price increases for June, put pressure on Treasury yields and dampened the appeal of the US Dollar as an investment.

The Commerce Department reported that the personal consumer expenditures index, excluding volatile food and energy prices, rose by a modest 0.2% month over month, aligning with economists’ estimates. Additionally, the core PCE, a key inflation indicator, increased 4.1% year over year, slightly below expectations. These figures followed the Federal Reserve’s decision to raise interest rates by 25 basis points during its recent meeting. The move was in line with market expectations as the central bank works to ease inflationary pressures and stabilize the economy. Federal Reserve Chair Jerome Powell acknowledged the easing of inflationary concerns during a press conference but emphasized that achieving the Fed’s 2% inflation target would still require further progress.

Short-Term Outlook:  Weaker

Given the decline in US Treasury yields and the subdued inflation data, the US Dollar currently faces headwinds, making it a less attractive investment option. On the other hand, the Canadian GDP’s steady growth contributes to the relative strength of the Canadian Dollar. As market participants closely monitor upcoming data, future monetary policy decisions will be made on a meeting-by-meeting basis. The focus will be on indicators that influence inflation and economic cooling measures.

The USD to CAD pair is experiencing a downward trend due to lower US inflation data and the resultant decline in Treasury yields. While the Federal Reserve has taken steps to address inflationary pressures with a modest interest rate hike, achieving the 2% inflation target remains a priority. In contrast, Canada’s steady GDP growth is bolstering the Canadian Dollar’s position. Investors are keeping a watchful eye on forthcoming data as it will significantly impact monetary policy decisions and currency dynamics.

Technical Analysis

4-Hour USDCAD

The USD to CAD market is exhibiting mixed sentiment as the 4-hour price edges higher than the previous close. The 200-4H moving average suggests a bearish long-term trend, while the short-term trend indicates weakness according to the 50-4H moving average. The 14-4H RSI hovers around the neutral level, implying balanced momentum.

Main support lies between 1.3118 and 1.3142, while main resistance resides at 1.3214 to 1.3237, aligning with the current price. The market’s positioning near the resistance area makes it crucial to watch for a potential bullish breakout or bearish reversal. Traders should closely monitor price movements and key indicators for further insights.