USD to CAD Prices Forecast: Uncertainty Amid Inflation Concerns Ahead of Employment News

Highlights

• USD retreats, CAD awaits vital employment data.
• U.S. outperforms Canada as inflation concerns grow.
• BoC’s inflation stance clashes with politicians.

USD to CAD Trends and Data

The USD to CAD experienced a dip on Friday as the market geared up for the release of vital Canadian employment and capacity utilization data. In contrast, the U.S. Dollar retreated, with investors capitalizing on profits as the week closed. However, a robust set of U.S. economic indicators throughout the week led to speculation about the Federal Reserve’s rate-hike end.

U.S. vs. Europe Economic Dynamics

U.S. economic performance this week was marked by a surprising surge in the services sector in August and the lowest jobless claims since February. Simultaneously, Germany, representing Europe’s powerhouse economy, saw its industrial production decline more than anticipated in July. Despite the global economic landscape, the U.S. continues to outshine its European counterpart.

The Canadian Dollar faces similar pressures from its US counterpart with the interest rate differentila favoring the US Dollar.

Canadian Economic Overview

Canada anticipates a 18.9K increase in Employment Change, a slight climb to 5.6% in Unemployment rate, and a jump to 82.5% from 81.9% in Capacity Utilization. Bank of Canada’s (BoC) Governor, Tiff Macklem, has indicated that current interest rates might not suffice to achieve the desired inflation target. This follows the BoC’s decision to maintain its benchmark rate at 5%. Inflation rates in Canada have consistently outpaced the bank’s 2% goal for over two years, creating significant concerns.

Bank of Canada’s Stance on Inflation

Macklem highlighted two potential reasons for the sustained inflation: the delayed effect of rates and the possibility of monetary policies not being stringent enough. He expressed concern over the need for prompt action, implying that delays could complicate inflation reduction. Despite the BoC increasing rates in June and July, inflation’s underlying momentum doesn’t seem to be waning. Macklem’s perspective seemed to be at odds with some Canadian politicians, with a few urging him to maintain rates.

Outlook and Forecasts

The current economic indicators suggest heightened caution for the Canadian Dollar as the country navigates inflation rates, which are persistently over the bank’s target. Macklem emphasizes the need to focus on reaching the 2% inflation goal. As the next BoC meeting in late October approaches, the money markets are betting on a 14% probability of a rate hike. Most economists anticipate the bank’s policy rate to remain consistent or even rise until March 2024, painting a bearish outlook for the Canadian Dollar.

Technical Analysis

The current 4-hour price of USD to CAD is 1.3668, which is above both the 200-4H moving average of 1.3462 and the 50-4H moving average of 1.3600. This indicates bullish momentum. The 14-4H RSI stands at 59.50, showing slightly strengthened momentum but not yet in the overbought territory.

The price is also above the main support area of 1.3508 to 1.3483 but is currently testing the lower boundary of the main resistance area (1.3654 to 1.3612), potentially suggesting a breakout or a reversal. Overall, the current market sentiment leans bullish for USD to CAD.