Canadian Dollar Forecast: USD/CAD Eyes Monthly Low Ahead of US PCE

Canadian Dollar Outlook: USD/CAD

USD/CAD falls toward the monthly low (1.3722) as it gives back the rebound from earlier this week, but the update to the US Personal Consumption Expenditure (PCE) Price Index may sway the exchange rate as the report is anticipated to show persistent inflation.

Canadian Dollar Forecast: USD/CAD Eyes Monthly Low Ahead of US PCE

USD/CAD remains under pressure following the Kansas City Fed symposium as Chairman Jerome Powell warns that ‘the shifting balance of risks may warrant adjusting our policy stance,’ and the selloff in the exchange rate may persist as the Federal Open Market Committee (FOMC) prepares to further unwind its restrictive policy.

US Economic Calendar

However, data prints coming out of the US may keep the FOMC on the sidelines as the core PCE, the Fed’s preferred gauge for inflation, is expected to increase to 2.9% in July from 2.8% per annum the month prior.

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Signs of sticky price growth may curb the recent selloff in USD/CAD as it puts pressure on Chairman Powell and Co. to keep US interest rates higher for longer, but a softer-than-expected PCE report may fuel the recent decline in the exchange rate as it boosts expectations for an imminent Fed rate cut.

With that said, USD/CAD may continue to approach the monthly low (1.3722) as it gives back the rebound from earlier this week, but the recent selloff in the exchange rate may turn out to be temporary as it no longer trades within the June range.

USD/CAD Price Chart – Daily

Chart Prepared by David Song, Senior Strategist; USD/CAD Price on TradingView

• USD/CAD pulls back ahead of the monthly high (1.3925) to register a fresh weekly low (1.3783), and a move/close below 1.3780 (23.6% Fibonacci extension) may lead to a test of the monthly low (1.3722).
• Failure to hold above the 1.3700 (38.2% Fibonacci extension) to 1.3710 (78.6% Fibonacci retracement) region may push USD/CAD toward 1.3630 (38.2% Fibonacci extension), with the next area of interest coming in around the July low (1.3722).
• Need a move above 1.3850 (50% Fibonacci extension) to bring the monthly high (1.3925) on the radar, with a push/close above the 1.3940 (61.8% Fibonacci retracement) to 1.4000 (61.8% Fibonacci extension) zone opening up the May high (1.4017).

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--- Written by David Song, Senior Strategist

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