USD/CAD Outlook: Bears Dominating in the Wake of BoC

• USD/CAD is struggling below the 1.3400 area.
• Sluggish oil prices may provide some room for buyers.
• Traders await the BoC rate decision today.

At the start of the European session, the USD/CAD outlook hovers near the crucial support level of 1.3340. A fall in the loonie is expected to reach weekly lows around 1.3320 after it failed to hold above 1.3400. A sluggish trend in the US Dollar Index (DXY) drives the major currencies.

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Moreover, investors are reluctant to take more positions before the US Gross Domestic Product (GDP) data is released. There is some resistance at 101.50 on the US Dollar Index (DXY). There was a strong rally in Alpha, created by US Treasury bonds. There was a slight increase in the yield on 10-year US government bonds to 3.47%.

An opinion poll by Reuters indicates that BoC Governor Tiff Macklem’s aggressive tightening campaign may ease as a 25 basis point (bp) rate hike to 4.50% is expected outside the BoC. Further monetary tightening could end as the Bank of Canada keeps interest rates at 4.5% until the end of the year. By the third quarter of 2024, Canada’s inflation rate should remain above its 2% target, with headline inflation at 6.3%.

Supply chain bottlenecks and a constrained labor market keep inflation high in Canada. A strong job market wasn’t enough to motivate manufacturers to slash prices at the factory gate. The Bank of Canada’s decision to raise interest rates could strengthen the Canadian dollar.

Wednesday morning, oil prices reached a critical support level of $80 due to the apparent weakness on Tuesday. Due to the Lunar New Year celebrations in Chinese markets, oil demand is expected to fall short term, which has put tremendous pressure on black gold. A lack of discussion about cutting supplies in the OPEC report also impacted oil prices.

USD/CAD key events ahead

The Bank of Canada policy rate decision is due today. The event can trigger high volatility in the market.

USD/CAD price technical outlook: No room for bulls

The USD/CAD price remains strongly bearish. The 4-hour chart shows the price is now playing with a support zone at 1.3340. The pair is prone to further losses below 1.3300. The 30-period SMA is well above the price, while RSI is at 39.

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On the flip side, the pair may bounce back to 1.3400 if it finds enough buying around the current levels. However, the markets are expected to consolidate around current levels in the wake of a catalyst.

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