The USD/CAD outlook indicates that last week’s rally may continue after a brief pause on Friday. The US dollar weakened at the end of the week due to softer-than-expected inflation data from the US. Meanwhile, the Canadian dollar resumed its decline, driven by the growing policy divergence between the Federal Reserve (Fed) and the Bank of Canada (BoC).
On Friday, the US core PCE price index showed a 0.1% increase in inflation, falling short of the anticipated 0.2%. This result caused the US dollar to ease after a strong week, renewing expectations that inflation might reach the Fed’s target. However, the data was not enough to alter expectations of rate cuts in 2025.
Last week, the Federal Reserve cut borrowing costs and signaled fewer rate cuts in 2025. This shift caused a sharp decline in market expectations for future rate cuts, which in turn strengthened the US dollar and weakened the Canadian dollar. Market participants have adjusted their outlook to reflect a slower pace of Fed rate cuts.
In contrast, the Bank of Canada has maintained an aggressive stance to support growth in the weak economy. Experts predict this approach will continue, especially with the possibility of tariffs on Canadian exports to the US, which could undermine the BoC’s economic revival efforts. Such a development could increase pressure on the central bank to lower interest rates.
In addition, Canada’s retail sales data on Friday showed a 0.6% increase, slightly below the forecasted 0.7%. Traders are now looking ahead to GDP data for further insights into the BoC’s potential rate-cut strategy.
USD/CAD Key Events Today
- Inflation Data
- Retail Sales
- Fed Outlook
USD/CAD Technical Outlook: Bulls Return at 30-SMA Support
From a technical perspective, USD/CAD is showing a rebound after finding support at the 30-SMA. Simultaneously, the RSI has tested and is bouncing off the 50 level, which separates bullish from bearish territory. This strengthens the bullish bias, with the price above the 30-SMA and the RSI indicating bullish momentum.
Bulls are targeting the 1.4450 resistance level, the previous high. A break above this would mark a higher high, reinforcing the bullish trend and potentially pushing the price to higher resistance levels. However, if the resistance at 1.4450 holds, it could result in a double top pattern, signaling a potential bearish reversal.
