USD to CAD Prices Forecast: Canadian Dollar Teeters Amid BOC Anticipation

Highlights

• The USD to CAD currency pair is brushing a six-month high, amid mounting anticipation over Bank of Canada policy decisions.
• U.S. Dollar strengthens on the back of rising Treasury yields and fresh global uncertainties rooted in China.
• Surpassing expectations, Canadian inflation spikes to 3.3% in July, hinting the Bank of Canada may be at its rate ceiling.

USD/CAD Nears Six-Month High

The USD to CAD currency pair is edging closer to a six-month peak on Wednesday as anticipation grows around today’s Bank of Canada (BOC) policy meeting. With the U.S. Treasury yields rising, the U.S. Dollar is gaining traction due to global concerns stemming from China and the implications of global growth.

Federal Reserve and Economic Indicators

Recent comments from Federal Reserve Governor Christopher Waller highlight the flexibility the U.S. central bank has in contemplating future interest rate hikes. Current market predictions lean towards the Fed maintaining the existing rates, evidenced by a 93% likelihood shown in the CME FedWatch tool. These speculations arise amidst escalating oil prices and their potential impact on the economy, causing experts like Ed Moya of Oanda to hint at the possibility of oil prices touching the $100 benchmark.

Canadian Economy and BOC Interest Rate Predictions

A majority of economists, based on a Reuters poll, anticipate the Bank of Canada to maintain its key interest rate at 5.00% until the end of March 2024. Despite this consensus, inflation rates in Canada have surpassed expectations, rising to 3.3% in July. This uptick, coupled with the revival signs in the housing market, suggests the Bank of Canada may have reached its terminal rate.

The Housing Market’s Influence

The Canadian housing market witnessed an approximate 50% surge during the pandemic and has only receded by around 10%. Although home prices are projected to decrease by 5.0% this year, the anticipated decline is milder than earlier forecasts. Experts believe that if the Bank of Canada indicates a rate reduction in the future, the housing market will experience renewed strength.

A Balanced Outlook

Given the current economic indicators and market sentiment, the outlook leans towards a steady stance on interest rates by the Bank of Canada. However, external factors like global growth concerns, inflation rates, and the housing market can tilt the scales, making the financial climate cautiously optimistic.

Short-Term Forecast: Cautious Optimism

Given the intricate interplay of global concerns, rising inflation, and housing market fluctuations, the short-term outlook for the USD/CAD is mixed. While current indicators suggest stability, external pressures could introduce volatility. Traders should approach the pair with cautious optimism in the near term.

Technical Analysis

Based on the 4-hour chart metrics, the current price of 1.3660 is precisely at the main resistance level, which ranges from 1.3612 to 1.3660. This could indicate a critical decision point for traders.

The 14-4H RSI is at 64.30, indicating stronger momentum but not yet reaching the ‘overbought’ threshold of 70.

Both the 200-4H and 50-4H moving averages are below the current price, at 1.3431 and 1.3577, respectively, suggesting a bullish trend in the short to medium term. Given this, market sentiment leans bullish.