USD to CAD Prices Forecast: US Rate Uncertainty Weighs Ahead of Data Releases

Highlights

• USD to CAD faces pressure amid signs of a weakening U.S. economic outlook.
• Traders shift focus to non-farm payrolls, seeking clarity on the U.S. economic trajectory.
• Bank of Canada’s expected steady rate contrasts with U.S. market uncertainties.
• Canada’s housing market shows resilience, with less severe price drop forecasts.

Economic Signals Pressure USD to CAD Exchange Rate

The USD to CAD currency pair is feeling the heat, with fluctuating sentiment this week fueled by weaker-than-expected U.S. economic indicators. A downward revision in the U.S. Q2 GDP growth to 2.1% and lackluster private payroll numbers for August suggest a slowing, yet healthy U.S. economy. Traders are watching with bated breath as more U.S. economic data is set to drop on Thursday with the Core PCE Price index and Friday with the monthly non-farm payrolls report.

U.S. Economic Data Raises Questions

A series of underwhelming U.S. reports has pulled down the USD to CAD to its lowest level in a week. With U.S. Treasury yields also softening, Wall Street’s focus is shifting toward the forthcoming non-farm payrolls. This data could provide critical insights into the U.S. economy’s health and possibly influence the Federal Reserve’s upcoming rate decision. The question on everyone’s mind: Is the Fed done with its rate hikes for now?

Bank of Canada Steady as She Goes

In contrast, the Bank of Canada is expected to maintain its 5.00% key interest rate through March 2024. Even with Canadian inflation reaching 3.3% in July, overshooting the 2% target, the Bank has enough leeway to keep rates steady due to a projected slowdown in Q2 growth and rising unemployment figures.

Canadian Housing Market Resilient

While the U.S. economic engine shows signs of slowing, Canada’s housing market is making a comeback. Prices that surged by 50% during the pandemic are expected to see a less severe drop than previously forecasted, as a potential rate cut next year could breathe life back into the market.

Short-Term Forecast: Bearish for USD/CAD

The short-term outlook appears slightly bearish for the USD to CAD. While pending U.S. non-farm payrolls could prove pivotal, the current data paints a picture of a waning U.S. economy. However, the Bank of Canada’s stance and the rebounding Canadian housing market could offer a counterbalancing force, making the USD to CAD a currency pair worth watching closely.

Technical Analysis

The current 4-hour price of 1.3541 is above the 200-4H moving average of 1.3382 but below the 50-4H moving average of 1.3562. This suggests some bearish bias but a possible tug-of-war between short-term and long-term trends. The 14-4H RSI stands at 42.97, signifying weakened momentum but not quite in the ‘oversold’ territory.

The current price hovers near the main support range of 1.3508 to 1.3495 but remains below the main resistance zone of 1.3612 to 1.3654. Overall, the market sentiment leans slightly bearish but watchful for reversal cues.