USD/CAD Forecast: Loonie Jumps on Improved Risk Appetite

• The People’s Bank of China announced plans to cut lending costs by 50-bps.

• Bank of Canada governor Tiff Macklem delivered a dovish speech.

• The dollar fell after data showed weaker-than-expected consumer confidence.

The USD/CAD forecast shows a new low for the pair this year after the loonie soared on improved risk sentiment. On Tuesday, China announced a stimulus package to support the economy, boosting commodity currencies like the Canadian dollar.

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The People’s Bank of China announced plans to cut lending costs by 50-bps among other measures to support the economy. China is a major consumer of most major commodities, including oil. Meanwhile, Canada is a net exporter of oil and benefits from higher global demand. Consequently, oil prices rose together with the Canadian dollar.

Furthermore, oil gained due to supply worries from tensions in the Middle East and a hurricane threat in the US. 

Elsewhere, Bank of Canada governor Tiff Macklem delivered a dovish speech, increasing bets for BoC rate cuts. He noted that the central bank had made a lot of progress in lowering inflation. Notably, Canada’s inflation reached the 2% target in August. Therefore, market participants should expect more rate cuts in the future.

Meanwhile, the dollar fell after data showed weaker-than-expected consumer confidence. The CB’s consumer confidence number fell sharply from 105.6 in August to 98.7. Moreover, it revealed that people were finding it harder to get jobs. Worries about the labor market dented the greenback since it could mean a more dovish Fed. 

After last week’s massive rate cut, market participants are expecting more data for clue on the next move. The main economic indicator is the core PCE due on Friday. 

USD/CAD key events today

There won’t be any high-impact events in the US or Canada. Therefore, the pair might extend yesterday’s move.

USD/CAD technical forecast: Channel breakout triggers sharp fall

On the technical side, the USD/CAD price has dropped sharply after breaking out of its bullish channel. The decline has broken several key support levels, including 1.3450. Moreover, the price has fallen far below the 30-SMA, with the RSI dipping into the oversold region. 

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Bears are in charge, and they are enthusiastic to push prices lower. However, USD/CAD might rebound to retest the recently broken 1.3450 level before continuing lower. The next major hurdle for the downtrend is at the 1.3400 level.

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