Home USD/CAD Outlook: Fitch’s Downgrade Triggers CAD Sell-Off

USD/CAD Outlook: Fitch’s Downgrade Triggers CAD Sell-Off

  • The Canadian dollar weakened to a nearly four-week low against the US dollar.
  • Analysts have raised their bullish forecasts for the Canadian dollar.
  • The US dollar might soften broadly over the next 12 months.

Today’s USD/CAD outlook is bullish. The pair extended gains made in the previous session. Notably, the Canadian dollar weakened to a nearly four-week low against the US dollar on Wednesday. This followed Fitch’s decision to downgrade the US government’s credit rating, prompting a sell-off in risk-sensitive currencies.

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Meanwhile, Wall Street stocks declined, and the safe-haven US dollar strengthened against major currencies. Furthermore, the dollar got support from data showing a larger-than-expected increase in US private payrolls in July.

Elsewhere, a Reuters poll on Thursday showed that analysts had raised their bullish forecasts for the Canadian dollar. This is because central banks worldwide, including the Federal Reserve, are approaching the conclusion of their interest rate hiking campaigns.

Moreover, the analysts predicted the Canadian dollar would strengthen by about 2.0% to 1.31 per US dollar or 76.34 US cents. This would happen within the next six months. Furthermore, next year, it is expected to rally to 1.29, representing a gain of 3.6%.

Shaun Osborne from Scotiabank said they anticipate the US dollar to soften broadly over the next 12 months as the Fed’s tightening cycle reverses.

Investors are now speculating that the Fed is nearing the completion of its tightening campaign. Consequently, the bank will shift to rate cuts in the first half of 2024. Such a move will likely support the global economy.

USD/CAD key events today

Investors will pay attention to PMI data from the US, including the S&P Global US services PMI and the ISM non-manufacturing PMI. There will also be a report on initial jobless claims.

USD/CAD technical outlook: Strong bulls eying 1.3400 resistance.

USD/CAD technical outlook
USD/CAD 4-hour chart

USD/CAD has made new highs on the charts after breaking above the 1.3350 resistance level. Consequently, it has pushed the RSI into the overbought region and left the 30-SMA far below, a sign bulls are in control.

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The next target for this strong move is at the 1.3400 resistance level. However, with the RSI at an extreme level, bulls might need a rest before breaking above more resistance levels. Therefore, we might see a pause at the 1.3400 level.

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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.