- The Canadian dollar is expected to underperform as the BoC pushes Canada closer to recession.
- Growth in Canada has slowed, with interest rates at a 14-year high.
- Markets expect the Fed to be more aggressive for longer than the BoC.
Today’s USD/CAD price analysis is bullish. According to a Reuters poll, the Canadian dollar is expected to underperform a September projection for the upcoming year. This is due to recent strong declines and the Bank of Canada’s threat to send the domestic economy into recession.
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The Canadian central bank has increased interest rates by 300 basis points since March to 3.25%, a 14-year high, to combat inflation. It claims that slowing growth won’t cause the economy to collapse.
Canada is a significant producer of many commodities, including oil, which has gained value this week due to OPEC+’s agreement to implement the most drastic production cuts since the COVID crisis.
However, more gains for crude will depend on whether the Federal Reserve sticks to its current trajectory of aggressively tightening monetary policy.
“As we see more concern about global growth kicking in and it becomes clear the Fed isn’t going to pivot, I think we could see speculators pushing oil lower,” said Christian Lawrence, senior cross-asset strategist at Rabobank.
The Fed is expected to complete its tightening cycle with a higher policy rate than the BoC, which might cause further problems for the loonie. As the US dollar strengthens, the Canadian dollar suffers.
USD/CAD key events today
Investors will pay attention to employment data from Canada and the US. However, more attention will be given to the US Nonfarm payrolls, which will determine the Fed’s next move regarding monetary policy.
USD/CAD technical price analysis: Bulls poised for a break above 1.3801
Looking at the 4-hour chart, we see the price trading above the 30-SMA and RSI above 50. The price found support at 1.3525, at which point bulls took over. The price is caught in a range with resistance at 1.3801 and support at 1.3525. This is seen in how it chops through the 30-SMA.
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This consolidation comes after a strong bullish trend. At the moment, bulls are pushing the price to retest range resistance. If bulls have enough momentum, the price will likely break above resistance and start making higher highs and higher lows.
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