USD/CAD Forecast: Dollar Struggles Following Downbeat US CPI

• The Canadian dollar hit a 5-week high after the US released its consumer inflation report.

• The US released its retail sales report, which revealed a significant drop from 0.7% to 0.0%.

• Canadian home sales fell 1.7% in April.

The USD/CAD forecast leans bearish as the dollar hovers near recent lows following a disappointing inflation report. Meanwhile, after rallying alongside US equities in the previous session, the Canadian dollar has retreated slightly.

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On Wednesday, the Canadian dollar hit a 5-week high after the US released its consumer inflation report. The data revealed a lower-than-expected figure for April, solidifying bets that the Federal Reserve will cut rates in September. The CPI increased 0.3% in April and 3.4% annually. This was a decline from the previous month’s readings and gave policymakers confidence that inflation was still on a downtrend. 

At the same time, the US released its retail sales report, which revealed a significant drop from 0.7% to 0.0%. This was another sign that the economy was slowing down due to high interest rates. It piled more pressure on the Fed to settle on the timing for the first rate cut. Consequently, rate-cut expectations increased, weighing on the dollar. Meanwhile, the Canadian dollar, which tracks Wall Street, soared as investors cheered the downbeat reports.

Elsewhere, data from Canada showed that home sales fell 1.7% in April. Although the Canadian dollar got a boost from dollar weakness, investors sobered to the fact that Canada’s economy is also deteriorating. Therefore, the Bank of Canada will likely still implement its first rate cut before the Fed.

USD/CAD key events today

• US unemployment claims

USD/CAD technical forecast: Bearish bias strengthens below 1.3650

On the technical side, the USD/CAD price has broken below 1.3650, a significant support level. The bias is bearish because the price trades far below the 30-SMA, and the RSI is in bearish territory below 50. After breaking below 1.3650, bulls might trigger a retest of the level before the downtrend continues.

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Moreover, the price might retest the 30-SMA resistance line.  Notably, the price has made a lower low in the more significant downtrend with a resistance trendline. Therefore, bears are in charge of the larger and the smaller moves. Consequently, there is a high chance that the price may fall towards the 1.3551 support.

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