Home USD/CAD Price Analysis: US Business Activity Hits 8-month Top

USD/CAD Price Analysis: US Business Activity Hits 8-month Top

  • Canada’s annual inflation rate decreased more than anticipated in January.
  • The Bank of Canada might hold interest rates constant.
  • The Fed will increase interest rates three more times this year.

Today’s USD/CAD price analysis is bullish. On Wednesday, the dollar found support as an unexpected uptick in business activity in the US increased the chance that the Fed would need to boost interest rates further.

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According to information made public on Tuesday, US business activity unexpectedly increased in February to reach its highest level in eight months.

The flash US Composite PMI Output Index, which measures the performance of the manufacturing and service industries, increased from a final score of 46.8 in January to 50.2 this month.

Data released on Tuesday revealed that Canada’s annual inflation rate decreased more than expected in January to 5.9%, which might allow the Bank of Canada to hold rates constant at its next meeting as it gives prior rate hikes time to take effect.

Experts had predicted that inflation would decrease slightly from 6.3% in December to 6.1%. 

According to Statistics Canada, the consumer price index increased by 0.5% month over month, falling short of the 0.7% growth predicted by analysts.

In January, the Bank of Canada increased its benchmark interest rate to 4.5%, the highest level in 15 years. It became the first significant central bank to announce that it would postpone additional hikes if prices declined as predicted.

Then, according to data released earlier this month, Canada’s economy shocked analysts by creating a net 150,000 new jobs in January.

Before the inflation data was made public, money markets predicted a 100% possibility of another rate increase this year. They now see a probability of about 80%.

USD/CAD key events today

All focus will be on the FOMC meeting minutes released later today. This might give more clues on what the Fed will do next.

USD/CAD technical price analysis: Pause before bullish continuation

USD/CAD technical price analysis

The 4-hour chart shows USD/CAD trading far above the 30-SMA and the RSI above the 50-mark, indicating a bullish trend. The price is making consistent higher highs and higher lows, showing bulls are very strong.

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At the moment, the price has paused at the 1.3550 key level, where bears have returned. This might lead to a pullback to retest the 1.3500 support level before the price seeks a new high.

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Saqib Iqbal

Saqib Iqbal

Saqib Iqbal is a market analyst, prop fund trader and mentor, serving the industry with his analysis and educational content since 2011. The author has great exposure to different financial markets and institutions. He's well-known for his day trading reviews and multiple timeframe analysis.