USD/CAD Forecast: Loonie Struggles with Oil, Rate Cut Bets

• The USD/CAD forecast is slightly bullish as it breaks 1.3800 as the dollar recovers ground after upbeat data.
• Falling oil prices and rising rate cut odds weaken loonie.
• Market participants eye FOMC meeting minutes and key US data ahead.

The USD/CAD forecast remains slightly positive as the price soars beyond 1.3800 on Wednesday, following a rebound on Tuesday largely driven by the dollar’s strength.

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The US Consumer Confidence report surprised the markets with a sharp rise to 98.0, snapping a 5-month decline. Job availability, income prospects and overall business conditions helped erase economic fears, overshadowing the 6.3% drop in US Durable Goods Orders due to a fall in demand of aircrafts.

The strong data helped the sentiment to shift away from the US debt sustainability concerns and ongoing trade uncertainty. Hence, enhanced risk-on mood benefited the dollar. The markets are now bracing for the FOMC meeting minutes today that could offer insights into Fed’s thinking on future policy. Moreover, the US GDP and Friday’s Core PCE inflation report are also important to watch as well.

Meanwhile, the Canadian dollar remains under selling pressure due to softer crude oil prices amid OPEC’s potential rise in oil supply from July. Lower oil prices heavily weigh on the loonie.

Moreover, the recent Canada’s economic data has urged the Bank of Canada to ease monetary policy as soon as June. Sluggish economic indicators and dovish BoC tone have added more to the loonie’s bearish tone.

Hence, the USD/CAD pair remains tilted to the upside, supported by the diverging economic indicators between US and Canada. The Fed’s minutes could further amplify this divergence if the tone is less dovish.

USD/CAD Technical Forecast: Bearish Channel to Cap Gains

The daily chart shows a strong bullish reversal signal. However, the downside trend starting from January still remains intact. The 20-day SMA at 1.3878 remains an immediate resistance for the pair. As long as the price stays below it, the risk of testing recent multi-month lows at 1.3695 remains high.

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However, breaking above the 20-day SMA can further intensify bullish pressure and lead the rally towards 1.4000.The price remains trapped within the bearish trend channel. A sustained move breaking above the channel resistance can confirm the bullish reversal.

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