USD/CAD Outlook: Buyers May Emerge Amid Debt Ceiling Bill

• The dollar rose amid optimism after the US House of Representatives passed the debt ceiling bill.

• Data indicated stronger-than-expected growth in Canada’s economy in Q1.

• The chances for a BOC rate hike next week have increased to approximately 40%.

Today’s USD/CAD outlook is slightly bullish. On Thursday, the dollar experienced an increase in value following a positive development in the US. The US House of Representatives approved to suspend the debt ceiling. 

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In a divided vote, the US House of Representatives passed a Wednesday bill to suspend the $31.4 trillion debt ceiling. The attention now shifts to the Democratic-led Senate, where the bill’s fate will be determined. 

Meanwhile, the Canadian dollar gained strength against the US dollar on Wednesday, driven by data indicating stronger-than-expected growth in the domestic economy during the first quarter. Consequently, expectations for an additional interest rate hike by the Bank of Canada rose.

Data revealed that Canada’s economy expanded faster than anticipated in the first quarter and likely accelerated in April. Statistics Canada said the economy grew at an annualized pace of 3.1% in the first three months, surpassing analyst and central bank expectations. Additionally, the agency stated that real GDP remained stable in March compared to February, outperforming a projected 0.1% decline. Moreover, GDP is expected to rise by 0.2% in April.

Following the release of the data, money markets assessed the probability of the Bank of Canada implementing another interest rate hike. Notably, the chances increased to approximately 40% for a rate hike next week, up from 28% before the data release.

USD/CAD key events today

Investors are awaiting employment and manufacturing PMI data from the US. The ADP nonfarm employment change will show employment in the private sector. It comes before the all-important NFP report.

USD/CAD technical outlook: Bearish takeover approaching 1.3550.

The bias for USD/CAD has changed from bullish to bearish on the 4-hour chart. This is because the price has crossed below the 30-SMA, with the RSI trading below 50. Bulls had previously been in control. However, they failed to push the price beyond the 1.3650 resistance.

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Bears are approaching the 1.3550 support level, where the price will likely pause or pull back to retest the SMA before breaking below. The next target for bears on breaking below 1.3550 is at the 1.3450 support. 

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