Home USD/CAD Price Analysis: Dollar Firms Up, Awaits Fed Decision

USD/CAD Price Analysis: Dollar Firms Up, Awaits Fed Decision

  • Investors believe the Fed will hold rates steady at 5.25% to 5.50%.
  • Futures markets are currently pricing a 30% chance of a 25bps Fed hike in November.
  • On Tuesday, the Canadian dollar strengthened to a six-week high against the US dollar.

Today’s USD/CAD price analysis is bullish as investors move to the dollar ahead of the FOMC meeting. Notably, the dollar maintained its strength against a basket of peers on Wednesday as the market awaited the Federal Reserve’s impending rate decision. Meanwhile, investors believe that the Fed will hold rates steady at 5.25% to 5.50%, shifting the spotlight to the central bank’s forward guidance.

Moreover, futures markets currently price in a 30% chance of a quarter-point increase in November. Additionally, there is a 40% likelihood of such a move in December, according to the CME FedWatch tool.

Meanwhile, the Canadian dollar strengthened to a six-week high against the US dollar on Tuesday. Still, it retraced some of its gains. The gains came after hotter-than-expected inflation data that raised expectations of further tightening by the Bank of Canada. 

Canada’s annual inflation rate surged to 4.0% in August from 3.3% in July, primarily due to higher gasoline prices. Analysts had expected inflation to reach 3.8%. 

Consequently, money markets now see a roughly 40% chance that the Canadian central bank will raise interest rates in October, up from 23% before the inflation data was released. 

BoC Deputy Governor Sharon Kozicki mentioned that recent fluctuations in headline inflation are not unusual. However, the core measures suggest an inconsistent trend with regard to achieving the 2% inflation target.

USD/CAD key events today

Investors are awaiting the Fed policy meeting, which will include the following:

  • FOMC economic projections.
  • FOMC statement.
  • Fed interest rate decision.
  • FOMC press conference.

USD/CAD technical price analysis: Bulls stage an impressive rebound from 1.3400 support.

USD/CAD technical price analysis
USD/CAD 4-hour chart

On the charts, the USD/CAD price has strongly recovered from the 1.3400 support level. The rebound is approaching the 1.3501 resistance level and the 30-SMA. Still, the general bias for the pair is down because the price trades below the 30-SMA. 

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At the same time, the RSI has kept dipping into the oversold region, characteristic of a downtrend. Therefore, bears are likely waiting to reenter the market at the 1.3501 resistance level. Bears must then break below the 1.3400 support for the downtrend to continue.

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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.