Home USD/CAD Outlook: Dollar Remains Bid Amid Stubborn Inflation

USD/CAD Outlook: Dollar Remains Bid Amid Stubborn Inflation

  • US inflation figures revived expectations that the Federal Reserve will prolong higher rates.
  • On Thursday, the Canadian dollar weakened to a six-day low against the US dollar.
  • The loonie faced pressure as the price of oil declined.

Friday’s USD/CAD outlook is bullish as the dollar stands strong due to unexpectedly robust US consumer inflation. As a result, there are increased expectations that the Federal Reserve will prolong higher rates. 

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Moreover, the inflation figures hinted at the possibility of the Federal Reserve implementing one more interest rate hike this year.

In a note, Macquarie’s head of economics, David Doyle, commented that the September CPI data highlights additional obstacles in achieving the ‘last mile’ to consistently steer inflation back to the Federal Reserve’s 2% target.

On Thursday, the Canadian dollar weakened to a six-day low against the robust US dollar. This decline was due to surging bond yields following the hotter-than-anticipated US inflation data.

Adam Button, the chief currency analyst at ForexLive, noted that the US dollar was exceptionally strong globally. Therefore, the Canadian dollar was caught up in this trend. Furthermore, he explained that higher US rates made the US dollar more appealing to foreign investors. Additionally, the US economy seemed capable of sustaining elevated rates while other economies, including Canada, faced challenges.

Canada’s economy is particularly sensitive to higher interest rates due to substantial household borrowing during the pandemic, notably in the hot housing market.

Furthermore, the loonie faced additional pressure as the oil price declined, a significant Canadian export. This drop came from data showing a substantial increase in US crude stockpiles.

USD/CAD key events today

Investors are not awaiting any key events from the US or Canada. Therefore, they will keep absorbing the US inflation news.

USD/CAD technical outlook: Bulls gearing up to smash through 1.3701 resistance.

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

On the technical side, there has been a shift in sentiment. Bears were in control initially. However, before retesting the 1.3550 support, bulls resurfaced and broke above the 30-SMA. At the same time, the RSI, which measures momentum, rose into bullish territory.

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Currently, the bullish move has paused at the 1.3701 resistance level. However, bulls have shown massive strength with large-bodied candles. Therefore, it will only be a matter of time before they breach the 1.3701 resistance. A break above this level would likely lead to a retest of the 1.3800 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.