USD to CAD Prices Forecast: Inflation Worries Dictate USD/CAD Movement Ahead of Crucial Data Release

James Hyerczyk
Published: Sep 11, 2023, 09:03 UTC

Investors pocket profits before U.S. inflation news, Canadian dollar near five-month low, and the August CPI report becomes pivotal.


In this article:


  • USD/CAD faces descent amid profit-taking, paused yields.
  • Loonie weakens; Bank of Canada keeps rates steady.
  • U.S. CPI report release stirs market anticipation.

USD to CAD Outlook Amid Inflation Concerns

Profit-Taking and Paused Yields

The USD to CAD exchange rate is on a descent for the second consecutive day, with the U.S. Dollar experiencing a mild setback. Investors appear to be pocketing profits in anticipation of the significant U.S. consumer inflation announcement scheduled for Wednesday. Additionally, a halt in the upward trajectory of Treasury yields is also influencing trading behavior. Presently, as of 08:27 GMT, the USD/CAD stands at 1.3606, marking a decrease by 0.0034 or -0.25%.

Loonie’s Recent Weakness and BoC’s Stance

Recently, the Canadian dollar, often referred to as the loonie, hit a five-month low when juxtaposed with its U.S. counterpart. This depreciation was a direct result of the Bank of Canada maintaining its interest rates, compounded by surprising robustness in the U.S. services sector, which strengthened the U.S. Dollar. The Bank of Canada’s neutral statement caused ripples in the market, highlighting potential concerns regarding inflation. Despite these undercurrents, a majority feel that the bank’s cycle of rate hikes has reached its culmination. The Canadian central bank has maintained its prime interest rate at 5%, acknowledging an era of subdued growth.

Anticipated U.S. Inflation Data

A focal point for investors this week is the U.S. consumer price data. A significantly high figure could stoke concerns of prolonged higher interest rates or the possibility of steeper rate hikes in the near future. This could spur investors to retain their U.S. Dollar holdings.

Further, readings on the producer price index and retail sales are on the radar for those attempting to gauge upcoming Fed policies. The prevalent sentiment is that the U.S. central bank will sustain its benchmark rates during its September 20th session. However, market indicators also suggest an increasing likelihood, currently pegged at 44%, of a rate surge in the Fed’s November meeting.

Inflation Indicators on the Horizon

Wednesday is crucial as it marks the release of the August Consumer Price Index (CPI) report by the United States Bureau of Labor Statistics. All eyes are on this data, looking for definitive signs pertaining to inflationary trends. According to Morgan Stanley’s projections, core inflation for August is anticipated to hover close to 0.2%, nudged by rising energy prices, albeit slightly offset by expected disinflation in core goods.

Short-Term Forecast: Cautious Vigilance

Given the blend of the looming CPI report, coupled with the Bank of Canada’s recent actions and the Federal Reserve’s anticipated moves, markets are treading with a mix of anticipation and caution. Investors should be on the lookout for shifts in the U.S. Dollar’s position, hinging on the imminent inflation data.

Technical Analysis

4-Hour USD to CAD

The current 4-hour price of 1.3600 is almost identical to the previous 4-hour price of 1.3601, showcasing negligible change. While it hovers slightly below the 50-4H moving average of 1.3602, it stands notably above the 200-4H moving average of 1.3474, hinting at a potential medium-term upward momentum. The 14-4H RSI at 41.18 is below the neutral zone, suggesting weakened momentum but not yet oversold.

The price is closely approaching the main resistance area (1.3612 to 1.3654) while staying well above the main support area (1.3508 to 1.3483). Based on this data, the current market sentiment leans slightly bullish.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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