USD/CAD Forecast: CAD Strongly Hit by Lower Rate Hike Bets

• The Canadian dollar saw its most significant monthly depreciation against the dollar on Friday.

• Investors reduced their expectations of another BOC interest rate hike.

• Canadian GDP contracted at an annualized rate of 0.2% in Q2.

Today’s USD/CAD forecast is bullish. On Monday, the Canadian dollar strengthened slightly against the dollar. However, it remained near lows hit on Friday as investors lowered their bets on more BOC hikes.

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On Friday, the Canadian dollar saw its most significant monthly drop against the dollar as investors reduced their expectations of another hike by the Bank of Canada. This shift in sentiment followed unexpected data revealing a contraction in the domestic economy in Q2.

Adam Button, chief currency analyst at ForexLive, remarked, “The Bank of Canada’s role is complete.” Moreover, he noted that the Canadian dollar’s decline came from increasing discussions about potential rate cuts. Finally, he suggested that Canada may already be in a recession.

Notably, in the second quarter, Canadian GDP contracted at an annualized rate of 0.2%, falling well below expectations of 1.2% growth. Furthermore, data indicated that Canada’s manufacturing sector’s decline accelerated in August.

As a result of these developments, money markets now assign only an 8% probability of a rate hike at the upcoming policy decision. This is down from 24% before the economic data release. Additionally, markets are fully expecting a rate cut by October next year.

Adding to the pressure on the Canadian dollar, the US dollar rebounded from earlier losses. It strengthened against a basket of major currencies after the US jobs report indicated the persistence of a robust labor market.

USD/CAD key events today

It might be a slow day for USD/CAD as Canada and the US observe the Labor Day holiday.

USD/CAD technical forecast: Bears reemerge at 1.3600 with limited force.

On the charts, USD/CAD trades above the 30-SMA with the RSI above the 50-mark, supporting a bullish bias. Bulls have made strong candles from the 1.3500 support level that broke above the SMA and gave them control. However, the bullish move has paused at the 1.3600 resistance level. 

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Although bears have resurfaced at this level, they are not showing much strength. Therefore, this might just be a short pause in the climb. If bulls return at the 30-SMA support, the price will likely breach the 1.3600 resistance and climb to retest 1.3650.

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