USD to CAD Prices Forecast: Steady Amid Fed, BOC Uncertainties

Highlights

• Upcoming non-farm payrolls report holds significant weight for U.S. employment insights.
• Bank of Canada’s rate decision hinges on Q2 GDP; current forecasts suggest 1.1% growth.
• Federal Reserve’s rate trajectory remains uncertain; Chair Powell cites inflation risks.

USD to CAD Movement Amidst External Factors

The USD to CAD saw an upswing on Wednesday, rebounding from a notable drop the day prior. The Canadian Dollar was influenced by falling gold and silver prices, though buoyed by resilient crude oil prices. This movement came in the wake of a drastic fall in the U.S. JOLTS job openings data for July, which hit a 2-1/2 year low, sending the U.S. Dollar on one of its steepest monthly declines. Eyes are now on the upcoming monthly non-farm payrolls report this Friday, a significant data point for U.S. employment metrics.

U.S. Outlook: Treasury Yields and Federal Reserve’s Stance

Market participants are closely monitoring U.S. Treasury yields. The two-year yield, closely tied to anticipated monetary policy shifts, touched 4.871% before steadying around 4.9%. Meanwhile, the 10-year yield lingered near 4.13%. Given the recent data and market sentiment, there’s an 86.5% chance the Federal Reserve will keep rates unchanged on September 20. However, the November meeting paints a more ambiguous picture, with rate hike probabilities nearing a toss-up. Federal Reserve Chair Jerome Powell has hinted at possible tightening, emphasizing inflationary concerns.

Canada’s Economic Health and BoC’s Decisions

All eyes are on Canada’s impending second-quarter GDP report. Predictions indicate a significant deceleration, with growth expected at 1.1%, a drop from the previous quarter’s 3.1%. This rate is also lower than the Bank of Canada’s (BoC) 1.5% projection. Inflation is rising, but the slowdown may prompt the BoC to pause on interest rate hikes. However, their decisions remain contingent on fresh economic data, considering other variables like wildfires and civil strikes that might impact the figures.

Rate Trajectory for BoC

In July, the BoC raised its key rate to a 22-year high of 5%. Financial markets currently see a 70% likelihood of a pause in rate hikes this September. Yet, a tilt towards further tightening by year’s end is evident. Factors such as the dock workers’ strike and June’s GDP decline hint at the possibility of a negative GDP for Q3. If domestic demand remains robust, the BoC could still favor a rate hike in September.

Short-Term Forecast: Mixed Sentiment

The landscape suggests a bearish short-term sentiment for the U.S. Dollar against the CAD. Yet, evolving economic data from both nations will play a critical role in determining future currency movements and central bank decisions.

Technical Analysis

The current 4-hour price of 1.3563 aligns precisely with the previous 4-hour close, indicating a flat market with no price change over the period. The price is above the 200-4H moving average of 1.3373, suggesting an underlying bullish trend. However, it’s just below the 50-4H moving average of 1.3564, which could indicate a slight bearish sentiment in the shorter term. The 14-4H RSI stands at 46.27, suggesting slightly weakened momentum.

While the currency pair is trading just above the main support area of 1.3508 to 1.3495, it’s below the main resistance area of 1.3612 to 1.3654. Based on these metrics, the market sentiment appears to be cautiously bearish in the short term.