- The dollar plummeted on Friday after a downbeat jobs report.
- Investors are betting on two rate cuts in 2024, totaling 45 basis points.
- A Reuters poll trimmed bets for a stronger Canadian dollar this year.
The USD/CAD outlook is looking slightly up as the US dollar stages a recovery following Friday’s jobs-driven decline. At the same time, the Canadian dollar was weak after a Reuters poll revealed that the currency will weaken more than expected this year.
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The dollar plummeted on Friday after a downbeat jobs report that increased Fed rate cut expectations. The US Labor Department revealed a smaller-than-expected 175,000 increase in employment in April. Furthermore, the unemployment rate beat forecasts of 3.8% and increased to 3.9%. The report indicated a drop in demand in the labor market that might allow the Fed to cut rates this year. Consequently, investors were betting on two rate cuts in 2024, totaling 45 basis points. However, this remains far less than the expectations for BoC rate cuts.
Notably, a Reuters poll on Friday trimmed bets for a stronger Canadian dollar this year because the Bank of Canada will likely cut rates well before the Fed. Moreover, the BoC will cut by more than the Fed in 2024. BoC governor Tiff Macklem said last week that they were getting closer to cutting interest rates as policymakers are confident in the downtrend in inflation.
Consequently, there is a 60% chance that the central bank will cut rates in March. Moreover, investors expect 60 basis points of cuts this year, more significant than the Fed’s 45 basis points.
USD/CAD key events today
There won’t be any critical economic reports from Canada or the US today. Therefore, the pair will likely move sideways.
USD/CAD technical outlook: Bullish engulfing candle signals a possible reversal
On the technical side, the USD/CAD price has pulled back sharply after breaking below a support trendline and the 1.3650 critical support level. Although the bias is bearish, bulls have made an engulfing candle that could lead to a reversal.
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Still, currently, the price sits below the 30-SMA, and the RSI is in bearish territory. For bulls to take charge, the price must break above the SMA. This would clear the path for bulls to retest the 1.3800 key resistance level. Otherwise, bears will continue the downtrend by breaking below 1.3650 to target the 1.3551 support.
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Saqib Iqbal
