- The Canadian dollar has remained subdued ahead of crucial inflation data.
- Price pressures in Canada might cool from 2.5% in July to 2.1% in August.
- The greenback is under pressure as market participants increasingly bet on a supersized rate cut.
The USD/CAD outlook shows indecision as investors await key events in Canada and the US. Canada will release significant data on inflation, giving more guidance on the next Bank of Canada policy move. Meanwhile, market participants eagerly await the Fed’s policy meeting on Wednesday.
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Most major US peers have risen since Friday due to increased Fed rate cut expectations. However, the Canadian dollar has remained subdued ahead of crucial inflation data. The Bank of Canada has cut interest rates three times since June. Moreover, policymakers have indicated a willingness to increase the size of cuts depending on economic performance.
Inflation in Canada has eased significantly and is nearing 2%. Economists predict today’s CPI report will show price pressures cooling from 2.5% in July to 2.1% in August. Such an outcome would give the BoC more room to continue lowering borrowing costs, weighing on the Canadian dollar.
On the other hand, the greenback is under pressure as market participants increasingly bet on a supersized rate cut. Since Friday, the likelihood of a 50-bps rate cut has risen, reaching 59%. Nevertheless, there is still a high chance of a smaller cut. As a result, traders are awaiting the US retail sales report for more clues on the size of the first cut.
USD/CAD key events today
- Canada CPI m/m
- Canada median CPI y/y
- Canada trimmed CPI y/y
- US core retail sales m/m
- US retail sales m/m
USD/CAD technical outlook: Consolidation under 1.3600
On the technical side, the USD/CAD price trades in a tight range between the 30-SMA and the 1.3600 resistance level. Nevertheless, the bias remains bullish, with the price above the SMA and the RSI over 50. Bulls took charge when the previous downtrend paused at the 1.3450 support level.
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However, the bullish trend has paused below the 1.3600 key psychological level. There is a high chance the price will soon breach this resistance since bullish momentum remains strong. However, if bears take over, it will break below the SMA to target the 1.3450 support level.
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Saqib Iqbal
