USD/CAD Forecast: Dollar Bulls Charged Amid US Debt Risk

• The dollar rose primarily due to its safe-haven status.

• Canada’s consumer price index experienced a year-over-year increase of 4.4% in April.

• Markets now indicate a nearly 50% likelihood of a BOC rate increase by July.

Today’s USD/CAD forecast is bullish. On Wednesday, the dollar strengthened primarily due to the potential risk of a US debt default. Additionally, traders adjusted their expectations of immediate Fed rate cuts following encouraging consumer spending data in the United States.

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On Tuesday, the Canadian dollar remained mostly unchanged against the US dollar, but it fared better than most other G10 currencies. This was due to stronger-than-anticipated domestic inflation data, which prompted investors to speculate on the possibility of an additional rate hike by the Bank of Canada. 

Canada’s consumer price index experienced a year-over-year increase of 4.4% in April, following a 4.3% rise in March. This marked the first increase in 10 months, surpassing analysts’ expectations of a drop to 4.1%.

Given the persistently high inflation and indications of renewed growth in the Canadian housing market, the Bank of Canada might not be able to lower interest rates this year. Since January, the central bank has maintained its benchmark rate at a 15-year high of 4.50%, halting its tightening campaign.

Previously, money markets had anticipated a prolonged period of stable monetary policy, potentially followed by a shift toward rate cuts before the end of 2023. However, the current sentiment has shifted, with markets indicating a nearly 50% likelihood of a rate increase by July.

USD/CAD key events today

Today investors will watch the crude oil inventories, and US building permits reports. The crude oil inventories report will impact the Canadian dollar by showing the state of oil demand in the US.

USD/CAD technical forecast: 30-SMA spurs bullish momentum

The bias for USD/CAD in the 4-hour chart is bullish. The price bounces higher after a failed attempt to break below the 30-SMA. This puncture also saw the RSI cross below 50 but is now back above, pointing to solid bullish momentum.

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The next step in this bullish move is retesting the 1.3550 resistance level. With enough momentum, bulls might break past 1.3550 to retest the 1.3650 resistance. This move would make a higher high and strengthen the bullish bias.

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