USD to CAD Price Forecast: Soars Amid Rising U.S. Treasury Yields

Highlights

• USD to CAD nearing multi-month high of 1.3502.
• U.S. producer prices for July exceeded expectations.
• Most anticipate Fed to maintain current interest rates.

Overview

The USD to CAD currency pair is showing significant strength, moving swiftly towards its multi-month pinnacle of 1.3502, established on August 8. This surge is primarily fueled by the rise in U.S. Treasury yields. Recent market sentiments underscore the notion that, despite the Federal Reserve’s current stance, commercial rates combined with bond yields are on an upward march.

July U.S. Producer Prices Surge

This boost in Treasury yields was further amplified by data unveiled last Friday, revealing a rise in U.S. producer prices for July. This increase surpassed initial forecasts, largely attributed to the rebound of service costs, marking their swiftest pace of growth in almost a year. Earlier, on Thursday, data had confirmed a moderate increment in consumer prices for July, casting shadows of doubt on the Federal Reserve’s future rate hike strategies.

Market Expects Steady Federal Rates

Market pundits now gauge an approximate 89% probability that the Fed will maintain interest rates during its upcoming meeting, as indicated by the CME FedWatch tool. The general consensus seems to be in favor of no additional hikes for the remainder of the year, even though some central bank officials believe it’s premature to draw such conclusions.

July Retail Sales to Influence Fed

However, ANZ analysts opine that recent labor and inflation metrics signify the likelihood of the Fed retaining unchanged rates in their September assembly. They accentuated the forthcoming July retail sales data as a crucial determiner, highlighting the U.S. consumer’s resilience in these testing times. Factors such as escalating fuel prices and tightening credit conditions are anticipated to play a pivotal role.

Short-Term Forecast:  Bullish

As we approach the release of the U.S. Federal Reserve’s July meeting minutes, the USD to CAD’s performance remains crucial. Current trends and underlying data hint towards a bullish stance for the currency pair.

Technical Analysis

The USD to CAD is displaying minor retreat from its previous 4-hour close, though the movement is negligible. When contrasted with the 200-4H moving average at 1.3266, the currency pair exhibits a bullish position, trading well above this key average.

Similarly, the currency slightly exceeds the 50-4H moving average of 1.3394, further emphasizing its robust standing. The 14-4H RSI, positioned at 60.28, leans towards stronger momentum, though not in the overbought territory.

Finally, the USD to CAD sits slightly above the main resistance area, suggesting building upside momentum. Summarily, the current sentiment for USD to CAD in the short term appears bullish.