- The US dollar is on track for a monthly loss.
- Preliminary data indicated a contraction in Canada’s economy in June.
- US inflation rose at the slowest pace in more than two years in June.
Today’s USD/CAD outlook is slightly bearish. The US dollar was on track for a monthly loss. The prospect of the Fed’s aggressive rate-hike cycle potentially concluding with last week’s 25-basis-point increase weighed the currency’s strength.
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Meanwhile, the Canadian dollar fell against the US dollar as preliminary data on Friday indicated a contraction in the domestic economy in June. Consequently, there are concerns that higher borrowing costs might be slowing economic activity.
Notably, Canada’s economy had grown by 0.3% in May. Still, it likely contracted by 0.2% in June, indicating a slowdown. This could lead to the conclusion of the Bank of Canada’s monetary tightening campaign, which had pushed interest rates to a 22-year high.
According to Karl Schamotta, the chief market strategist at Corpay, the data indicates that the underlying momentum is weakening as higher borrowing costs take effect.
In contrast, separate data showed that annual US inflation rose at the slowest pace in more than two years in June. If this trend continues, the Federal Reserve could be closer to ending its rapid interest rate hiking cycle. The cycle has been the fastest since the 1980s.
The hope of a soft landing for the US economy boosted Wall Street and the oil price on Friday. US crude oil futures settled 0.6% higher at $80.58 a barrel.
USD/CAD key events today
Given the absence of significant economic reports or data releases from both the United States and Canada, it is highly probable that the pair will enter a period of consolidation.
USD/CAD technical outlook: Bulls paving the way for upside potential.
On the charts, USD/CAD has broken above its range area. The pair has been consolidating with support at 1.3150 and resistance at 1.3225. However, the bulls have finally breached the range resistance. Bulls will likely head for the next hurdle at 1.3300 if the price stays above the resistance.
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However, this could be a false breakout. If so, bears will return to push the price back below 1.3225, returning it into the consolidation area.
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