USD/CAD Weekly Forecast: Fed-BoC Rate Divergence

• Fed policymakers pushed back on expectations for a cut in June.

• The US NFP report showed robust demand in the labor market.

• Canada released a dismal employment report.

A close look at the USD/CAD weekly forecast reveals hints of a bullish trend as the policy outlook between the US and Canada takes divergent paths.

Ups and downs of USD/CAD

USD/CAD had a bullish week where bets for a June Fed cut fell while those for a June BoC cut increased. The week was volatile for the dollar, which fell when the US reported a slowdown in service activity. However, it ended higher after hawkish Fed remarks and an upbeat jobs report. Fed policymakers pushed back on expectations for a cut in June, saying inflation had stalled. Moreover, the US NFP report showed robust demand in the labor market, leading to a decline in rate-cut bets. 

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On the other hand, Canada released a dismal employment report, with employment dropping and unemployment rising. This showed a weaker economy that might pressure the BoC to start cutting interest rates. 

Next week’s key events for USD/CAD

Next week, investors will focus on US consumer and producer inflation data. Moreover, the Bank of Canada will decide on monetary policy.

Investors will be keen to see whether inflation will beat forecasts again. In such a case, rate-cut bets might fall further after the jobs report, allowing the USD/CAD pair to rally. On the other hand, if inflation falls, rate-cut bets will increase.

Meanwhile, markets expect the Bank of Canada to hold rates at 5% on Wednesday. They will also focus on messaging regarding rate cuts. For now, futures point to the first cut in June.

USD/CAD weekly technical forecast: Bulls maintain control despite weak momentum

On the technical side, USD/CAD is bullish as the price has risen well above the 22-SMA. At the same time, the price is trading within a bullish channel. Meanwhile, the RSI has been in a tight sideways move in bullish territory. This is a sign that momentum is weak, although bulls are in the lead. 

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The price will likely start a stronger trend when it breaks out of the bullish channel. A break above the channel resistance would lead to a retest of the 1.3800 key resistance level. Moreover, it would allow the price to trend higher.

On the other hand, if the price breaks below the channel support in the coming week, the trend will reverse.

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