USD to CAD Price Forecast: Rally Fueled by Lingering Inflation, Rate Hike Concerns

Highlights

• USD to CAD strengthens due to inflation and rate hike concerns.
• Fed survey shows tighter credit standards and weaker loan demand.
• Investors cautious as central banks navigate uncertain economic conditions.

Overview

On Tuesday, the USD to CAD exchange rate saw a strengthening trend, sparked by investors’ mounting worries about inflation and the potential for another rate hike. Supporting the greenback’s rise was a survey conducted by the Federal Reserve, revealing tighter credit standards and weaker loan demand from both businesses and consumers during the second quarter.

Surging Interest Rates Impact Economy

The Fed’s quarterly Senior Loan Officer Opinion Survey (SLOOS) has further added evidence that the surging interest rates are beginning to impact the economy. As banks anticipate a continued tightening of lending standards throughout 2023, concerns are growing about the possibility of a U.S. recession later this year. Such tight lending practices could exacerbate the effects of rising interest rates and have significant implications on the economic front.

Investors Awaits US Employment Data

Investors will closely watch the U.S. employment data to be released later this week, as it could serve as a crucial indicator for the Fed’s interest rate expectations. Any positive surprises in the data may remind traders that a further rate hike remains a plausible scenario, thus bolstering the USD to CAD exchange rate.

Fed Not Fully-Committed to Rate Hike Pause

However, despite the rally, there are signs of technical resistance, and recent statements by Jerome Powell offer a gentle reminder that the market might have overreacted to a few softer U.S. economic data points.

In the midst of inflationary pressures, Chicago Federal Reserve President Austan Goolsbee asserted that the central bank is carefully treading the line, aiming to curb inflation without triggering a recession. The central bank will closely monitor economic data to assess whether additional monetary tightening might be necessary in September.

Global Central Banks Eyeing Inflation

The global scenario also remains uncertain, as central banks worldwide grapple with the question of whether inflationary pressures are subsiding quickly enough. The commitment to data-dependent decision-making is evident as central banks cautiously navigate these challenging economic conditions.

Short-Term Outlook:  Data-Dependent

As we move forward, traders and investors will keep a close eye on economic indicators and central banks’ actions, which will significantly influence the USD to CAD exchange rate in the near term. The market remains sensitive to any surprises in economic data, reinforcing the need for prudence and vigilance in navigating the ever-changing financial landscape.

Technical Analysis

The USD to CAD market demonstrates bullish sentiment as the current 4-hour price of 1.3254 edges slightly higher than the previous close. Trading above the 200-4H and 50-4H moving averages at 1.3215 and 1.3199, respectively, further supports the positive trend. With a 14-4H RSI reading of 59.63, indicating mildly bullish momentum, the market maintains a favorable outlook.

Moreover, the current price is rapidly approaching the main resistance area of 1.3268 to 1.3302, reinforcing the optimistic sentiment. Traders should remain attentive to the resistance level and the RSI indicator for potential trading opportunities amidst the prevailing bullish market sentiment.