USD to CAD Prices Forecast: Lower on Global Optimism, Higher Oil Prices Ahead of CPI Data

Highlights

• Canadian dollar hits one-month high.
• USD to CAD weakness fueled by rising oil prices, global optimism
• Jump in Canadian CPI could prompt BOC to raise rates in October. 

USD/CAD Reflects Global Economic Optimism

The USD/CAD pair is down sharply as the Canadian dollar hit a one-month high against its U.S. counterpart. This movement comes amidst a rising tide of global economic optimism, fueled in part by China’s increased stimulus measures and the consistent positive economic output from the U.S. As oil prices, a key export for Canada, saw U.S. crude futures reaching a 10-month zenith at $91.48 a barrel, the impact on the currency pair became evident.

Upcoming Canadian Inflation Data Causes Ripples

August witnessed a jump in Canadian producer prices by 1.3%, an uptick attributed mainly to rising prices in energy, petroleum, and related chemical products. This development in the USD/CAD trading dynamic is keenly observed as traders await the impending consumer price index report. Forecasts indicate an inflationary rise to 3.8% in August, up from 3.3% in July.

The Bank of Canada’s Rate Decisions Affecting USD/CAD

The Bank of Canada’s (BoC) decision to retain its benchmark interest rate at 5% has been a talking point in trading circles. Though the bank has signaled potential future rate increases in response to persistent price pressures, BoC Governor, Tiff Macklem, has stated concerns. He believes the current rates might not effectively counteract inflation, which has consistently surpassed the bank’s 2% target for a substantial 27-month period.

Navigating the Tricky Waters of Growth and Inflation

A surprising contraction in Canada’s GDP by an annualized 0.2% in Q2 has thrown a spanner in the works, hinting at potential recessionary trends as interest rates climb. Concurrently, the July inflation rate also saw acceleration. The emphasis from the BoC remains on proactive inflation management, suggesting that unchecked inflation could have greater ramifications than merely elevated borrowing costs.

Short-term Forecast

The combination of rising oil prices, potential for tighter monetary policy from the BoC, and global economic optimism points to a bearish short-term outlook for USD to CAD.

Technical Analysis

The current 4-hour price of 1.3455 is slightly above its previous 4-hour close of 1.3451, indicating minimal movement. It currently trades below both the 200-4H moving average of 1.3525 and the 50-4H moving average of 1.3559, suggesting a bearish trend. The 14-4H RSI at 28.88 confirms this bearish momentum, being well into the oversold territory.

Furthermore, the price is situated between the main support area of 1.3412-1.3372 and the main resistance area of 1.3483-1.3508. This positioning, combined with the other indicators, portrays a bearish market sentiment for the USD to CAD in the short term.