Canadian Dollar Forecast: USD/CAD Rises amid Slowing Canada Inflation

Canadian Dollar Outlook: USD/CAD

USD/CAD rises to a fresh weekly high (1.3857) as Canada’s Consumer Price Index (CPI) shows a slowdown in both the headline and core rate of inflation, and the exchange rate may further retrace the decline from the monthly high (1.3879) as it appears to be defending the rebound from last week.

Canadian Dollar Forecast: USD/CAD Rises amid Slowing Canada Inflation

USD/CAD extends the advance from the weekly low (1.3783) as Canada’s CPI narrows to 1.7% in July from 1.9% the month prior, and signs of easing price growth may put pressure on the Bank of Canada (BoC) to adjust its policy as the central bank warns that ‘GDP likely declined by about 1.5% in the second quarter.’

As a result, the Canadian Dollar may face headwinds ahead of the next BoC meeting on September 17 as the central bank acknowledges that ‘if a weakening economy puts further downward pressure on inflation and the upward price pressures from the trade disruptions are contained, there may be a need for a reduction in the policy interest rate.’

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Speculation for a BoC rate-cut may fuel the recent recovery in USD/CAD especially as the Federal Reserve continues to combat inflation, and headlines coming out of the Kansas City Fed Economic Symposium in Jackson Hole, Wyoming may sway the exchange rate as Chairman Jerome Powell and Co. also appear to be on course to implement lower interest rates.

With that said, USD/CAD may track the flattening slope in the 50-Day SMA (1.3706) if it struggles to retrace the decline from the monthly high (1.3879), but the exchange rate may establish a bullish price series as it appears to be defending the rebound from last week.

USD/CAD Price Chart – Daily

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

• USD/CAD initiates a series of higher highs and lows as it climbs to a fresh weekly high (1.3857), and a close above 1.3850 (50% Fibonacci extension) may lead to a test of the monthly high (1.3879).
• Need a move/close above the 1.3940 (61.8% Fibonacci retracement) to 1.4000 (61.8% Fibonacci extension) zone to open up the May high (1.4017), but lack of momentum to test the monthly high (1.3879) may push USD/CAD back toward 1.3780 (23.6% Fibonacci extension).
• A breach of the monthly low (1.3722) brings the 1.3700 (38.2% Fibonacci extension) to 1.3710 (78.6% Fibonacci retracement) region on the radar, with the next area of interest coming in around 1.3630 (38.2% Fibonacci extension).

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--- Written by David Song, Senior Strategist

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