USD to CAD Prices Forecast: BoC Rate Pause, US Treasury Dynamics Bolster USD/CAD

Highlights

• U.S. Treasury yields fuel USD/CAD’s rise.
• BoC maintains 5% interest rate.
• Market eyes Federal Reserve speakers and data.

USD to CAD Dynamics Amid Global Economic Conditions

The USD to CAD exchange rate witnessed an upward movement on Thursday, recovering from a noticeable drop in the previous session. U.S. Treasury yields’ consistent performance primarily attributes to this increase. These yields have remained resilient as investors gauge the implications of potential Fed rate hikes in the wake of data pointing to sustained inflationary pressures.

Bank of Canada Maintains Key Overnight Rate

The Bank of Canada (BoC), on the other hand, maintained its key overnight interest rate at 5% on Wednesday. This decision comes in the backdrop of the bank’s observations of a decelerating economy. Despite this slowdown, which saw Canada’s GDP contract by an annualized 0.2% in the recent quarter, inflationary pressures have not eased. July reported an inflation spike to 3.3%, with core measures lingering around 3.5%. Although the bank has incrementally raised interest rates in June and July, they stated, “Governing Council decided to hold the policy interest rate at 5%.” However, they did not rule out potential rate hikes if inflationary trends continue.

Diverging FED and BOC

Analysts interpret the BoC’s stance as cautious. While there’s an evident openness to future rate hikes, many believe that, unless there’s a significant economic recovery in the third quarter, further hikes are improbable. The prevailing sentiment is, “the BoC is likely done with rate hikes.”

Contrastingly, the U.S. market indicators hint at the possibility of the Federal Reserve instituting further rate hikes if inflation remains a concern. This potential for rate adjustments in the U.S., coupled with the BoC’s current hold, tilts the interest rate differential in favor of the U.S. Dollar.

Anticipated Market Movements

The financial landscape will be attentive to several Federal Reserve speakers in the upcoming trading session. These include notable figures like Harker, Williams, Bowman, and Logan. Simultaneously, the Bank of Canada’s Governor, Macklem, is scheduled to address the market. In addition to these, traders will be keenly awaiting economic reports, particularly the weekly U.S. Unemployment Claims data.

Short-Term Forecast

Considering the strength of the U.S. Treasury yields, the Bank of Canada’s current stance on interest rates, and the anticipation surrounding upcoming Federal Reserve speakers, the USD/CAD is likely to experience bullish momentum in the short term. This is further supported by the interest rate differential leaning towards the U.S. Dollar and the upcoming economic reports. Traders should, however, remain vigilant to market reactions following the slated speeches and data releases.

Technical Analysis

The USD to CAD currency pair shows a strong position, currently trading at 1.3652, just above its 50-4H moving average (1.3590) and significantly surpassing its 200-4H moving average (1.3446). The 14-4H RSI reading at 59.76 indicates a solid momentum that’s on the verge of turning bullish but hasn’t hit overbought conditions yet.

When examining support and resistance levels, the pair is currently flirting with its main resistance range of 1.3612 to 1.3654, suggesting potential challenges ahead. The strong position above key moving averages and the nearing resistance hint towards a slightly bullish sentiment for the pair in the short term.