USD to CAD Price Forecast: Under Pressure Due to Diverging Monetary Policies

Highlights

• Downward pressure on USD/CAD amid economic data and rate hike expectations.
• Weak US inflation and Canadian rate hike contribute to volatility.
• Chinese growth data and stimulus expectations impact market sentiment.

Overview

The USD to CAD exchange rate is experiencing downward pressure today, following a failed attempt to extend Friday’s robust surge. Traders remained cautious as they awaited economic data and policy decisions that could influence the currency pair’s direction.

Weak US Inflation and Canadian Rate Hike

Last week, the USD to CAD reached its lowest level since September 13, driven by a combination of factors. Weaker US consumer inflation data raised speculations that the Federal Reserve may pause its rate hikes after the July meeting. Additionally, the Bank of Canada implemented a 25 basis point rate hike, with the potential for further increases. These events contributed to the volatility in the market.

Chinese Growth Data and Stimulus Expectations

Chinese growth data released on Monday slightly exceeded low expectations. However, it failed to ignite significant market response as traders had already factored in a sluggish quarter. Market participants are now eagerly anticipating potential stimulus measures from the Chinese government to bolster spending and revive economic activity.

Concerns Over Demand and Rate Hike Expectations

Today, the USD/CAD is experiencing a mixed trading session due to lackluster economic data from China, which has raised concerns over demand. Simultaneously, investors are speculating that the US Federal Reserve may soon reduce the pace of its rate hikes, influencing market sentiment.

Disinflationary Trend and Future Expectations

Recent US data indicated a disinflationary trend, with consumer prices growing at their slowest pace in over two years. While a rate hike from the Federal Reserve is widely anticipated during the July 25-26 meeting, it is expected to pause there before potential rate cuts next year. These factors have contributed to the downward pressure on the USD to CAD exchange rate.

Short-Term Forecast: Bearish Outlook for USD/CAD

Considering the potential peak of economic cycles and the contrasting monetary policies of the Federal Reserve and the Bank of Canada, the USD to CAD pair is likely to face further downward pressure. Lower rates by the Fed and higher rates by the Bank of Canada reinforce the bearish sentiment for the USD/CAD exchange rate.

In conclusion, the USD/CAD exchange rate is currently navigating through volatile conditions, influenced by economic data, rate hike expectations, and market sentiment. As traders monitor these factors closely, the near-term outlook for the USD/CAD remains bearish.

One factor that could alter this forecast is an oversold U.S. Dollar. In this case, we could see a short-term counter-trend rally.

Technical Analysis

The USD to CAD market is exhibiting a slightly bearish sentiment based on the provided technical indicators. With the current price matching the previous close, stability is observed in the short-term.

However, the price is below both the 200-4H and 50-4H moving averages, indicating a bearish bias. The 14-4H RSI sits above the neutral level at 55.34, suggesting moderate momentum. The market is currently trading within the main support and resistance areas, signifying a consolidation phase.

With the trend down, we’re looking for sellers to reemerge on a test of the 50-4H and 200-4H moving averages.