Home USD/CAD Forecast: Powell Confirms Rate Hike Cycle’s Continuity

USD/CAD Forecast: Powell Confirms Rate Hike Cycle’s Continuity

  • Federal Reserve Chair Jerome Powell expressed concern over strong inflation.
  • Investors expect the Canadian central bank to maintain rates at their current levels.
  • Traders now expect a 50 basis point US rate hike in March.

Today’s USD/CAD forecast is bullish. On Wednesday, the dollar reached multi-month highs versus most of the world’s major currencies. Federal Reserve Chair Jerome Powell expressed concern that strong inflation may require higher US interest rates than initially anticipated.

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The dollar benefits from higher rates as traders seek protection while global stock markets decline and because they increase the currency’s yield.

Short-term US rate expectations soared after Powell told legislators on Capitol Hill on Tuesday that recent US economic figures were stronger than anticipated. Therefore, the pace and magnitude of future rises may also need to be increased.

The Canadian central bank might maintain rates at their current levels later in the day. The Canadian dollar, which last traded at 1.3772 to the US dollar and is down more than 1% since Monday, may come under even more pressure.

According to Deutsche Bank strategist Alan Ruskin, if the Fed goes on to raise interest rates by 50 basis points in March and the Bank of Canada halts its rate hike cycle as expected, there will be a gap that could see USD/CAD rising to 1.40.

Powell’s comments also raised short-term rate expectations, with traders expecting a 50 basis point US rate hike in March. This is up from approximately a 30% likelihood the day before, according to CME’s FedWatch tool.

Futures indicate that US interest rates will peak above 5.6% and remain above 5.5% through 2023. 

USD/CAD key events today

Investors are awaiting the Bank of Canada interest rate decision that will likely cause a lot of volatility. There will also be employment data from the US and more from Powell.

USD/CAD technical forecast: Overbought region

USD/CAD technical forecast

The 4-hour chart shows USD/CAD in a solid bullish move that has seen the RSI cross to the overbought region. The price trades well above the 30-SMA, showing bulls are holding the reigns. 

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The bulls managed to show their strength when they broke above the 1.3650 resistance level. The price is currently trading near the 1.3775 level and might continue higher. At the same time, bears might come in for a pullback as the price is overbought.

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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.