USD/CAD Outlook: Rising Interest Rates Trigger Recession Worries

USD/CAD Outlook: Rising Interest Rates Trigger Recession Worries

  • The BoC has increased interest rates by 350bps in just seven months.
  • Many are pleading with the BoC to ease up on rate hikes as consumers suffer.
  • The Fed will likely maintain its aggressive policy as there are signs inflation pressure is still present.

Today’s USD/CAD outlook is bullish as recession worries in Canada weaken the Canadian dollar. Although Canada’s headline inflation rate has decreased from a peak of 8.1% to 6.9%, food prices are still rising, and price pressures are still present. The Bank of Canada (BoC) has increased interest rates by 350 basis points in just seven months.

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As a result, Canadian consumers and small businesses are being squeezed on all sides. Politicians, unions, and even some economists are pleading with the central bank to ease up on its tightening. Last week, the bank increased rates by 50 basis points to a new 14-year high, indicating that its tightening campaign was almost at its pinnacle but still ongoing.

With its expensive housing market and highest G7 consumer debt levels, Canada is particularly vulnerable to interest rate increases. There are growing concerns that the BoC’s aggressive rate increases may lead to a recession.

Tiff Macklem, the governor of the Bank of Canada, said on Sunday that he sees no threat to the bank’s independence, even though it is the subject of intensive scrutiny.

On the other hand, the dollar rose on Monday after solid consumer spending data showed continuing underlying inflation pressure. It has reduced speculation that the US Federal Reserve will slow down its aggressive drive to tighten monetary policy.

USD/CAD key events today

The pair will likely consolidate as there won’t be significant news releases from the US or Canada.

USD/CAD technical outlook: Bulls win the battle for control at the 30-SMA resistance

USD/CAD outlook

The 4-hour chart shows the price trading above the 30-SMA and the RSI above 50. After a period of equal strength at the 30-SMA, bulls have taken control. The price fell to 1.3501, and bears could not push it lower. Bulls took over, taking the price back to the 30-SMA, where it paused.

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The price was caught between the 30-SMA and the 1.3600 key level for some time, where there was a battle for control. The bulls won, and the price will likely climb to 1.3750 resistance.

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Saqib Iqbal

Saqib Iqbal

Saqib Iqbal is a market analyst, prop fund trader and mentor, serving the industry with his analysis and educational content since 2011. The author has great exposure to different financial markets and institutions. He's well-known for his day trading reviews and multiple timeframe analysis.