USD to CAD Price Forecast: Traders Squaring Positions Ahead of US CPI Data

Highlights

• USD to CAD traders brace for U.S. CPI data. 
• China’s deflation data causes market ripple.
• Mixed signals from Fed on rate hikes.

Overview

The USD to CAD is experiencing a slight downtrend today, largely attributed to traders’ anticipation of the U.S. Consumer Price Index (CPI) report set to be released tomorrow. While a decline in Treasury yields and a weaker dollar are evident triggers for the dip, the current chart pattern indicates that investors might be rebalancing portfolios after a recent two-week uptrend. At a glance, the USD to CAD stands at 1.3415, reflecting a marginal decrease of 0.02%.

Chinese Deflation Data Influences USD to CAD

Surprising data from China revealed consumer prices declined for the first time in over two years, causing the USD to CAD to waver. However, global market attention is riveted more on the forthcoming U.S. inflation data than China’s economic fluctuations. The consensus is that central banks worldwide, including the Fed, ECB, and Bank of England, are primarily focusing on service prices and labor market tightness, rendering China’s deflationary data less impactful.

Mixed Messages from the Fed on Interest Rate Direction

Federal Reserve officials have provided varied insights on the path of interest rates. While Philadelphia Fed President Patrick Harker and Atlanta Fed President Raphael Bostic lean towards the belief that current interest rates are sufficient, Fed Governor Michelle Bowman hinted at possible hikes in the future. Despite the divided opinions, market predictions solidly back a 0.25% rate increase in the Fed’s next policy session in September.

Canada’s Trade Deficit Widens, Challenging Exporters

Recent statistics have shed light on Canada’s enlarging trade deficit, which widened to C$3.73 billion in June. Exports dipped by 2.2%, overshadowing a 0.5% drop in imports. Meena Aier from Export Development Canada pinpoints high inflation and unfavorable cost conditions as significant hurdles for Canadian exporters.

Short-term Forecast: Bullish or Bearish?

With the imminent release of the U.S. CPI data and mixed signals from Fed officials, the USD to CAD might face short-term volatility. However, given the broader economic landscape, a bearish outlook appears more likely in the immediate future.  The CPI data would have to confirm the need for another Fed rate hike, however, which the Fed Funds report suggests has been largely priced into the Forex pair.

Technical Analysis

The current 4-hour price for the USD to CAD pair stands at 1.3416, which is identical to the previous 4-hour close, indicating a period of stagnation or consolidation in the market.

Comparatively, the pair is trading above both the 200-4H moving average (1.3243) and the 50-4H moving average (1.3326), showcasing an underlying bullish momentum. The 14-4H RSI, recorded at 57.80, reinforces this bullish sentiment as it suggests stronger momentum, being above the neutral 50 mark.

Furthermore, the price is positioned just inside the main resistance area at 1.3406 to 1.3450. This creates a challenge for the bulls, which could result in short-term profit-taking ahead of Thursday’s CPI report.