The USD/CAD currency pair climbed to a fresh three-month high of 1.3800 following the Bank of Canada’s decision to cut interest rates by 25 basis points to 4.5%.
Why it matters: The rate cut weakened the Canadian Dollar as it reflected cooling inflationary pressures and deteriorating labor market conditions in Canada.
The details:
- The BoC forecasts consumer price inflation to stabilize at 2% by 2025 and has revised its growth forecast downward to 1.2% from 1.5%.
- The performance of the Canadian Dollar was further dampened by weak oil prices due to a bleak oil demand outlook and easing supply concerns.
- The US Dollar experienced a downturn following a mixed US S&P Global flash PMI report for July, with the DXY index dropping from a weekly high of 104.50 to 104.20.
Investors are keenly awaiting the US Personal Consumption Expenditure Price Index data for June, which is expected to show a deceleration in core PCE inflation to 2.5% from May’s 2.6%.
Key factors impacting the Canadian Dollar:
- Interest rates set by the Bank of Canada affect borrowing costs and typically support the CAD when higher.
- Fluctuations in oil prices, as Canada’s largest export, have a significant impact on the CAD.
- Macroeconomic indicators such as GDP, employment, and consumer sentiment influence the CAD’s strength.
- Higher inflation can prompt central banks to raise interest rates, potentially boosting the currency’s value.
- Risk sentiment plays a crucial role, with risk-on environments being CAD-positive and risk-off phases negatively affecting the CAD.
- The health of the US economy, as Canada’s largest trading partner, significantly influences the CAD.
USDCAD price forecast for 29-07-2024:
The USDCAD price tested 1.3845$ and found solid resistance, awaiting positive momentum to potentially rally towards 1.3977$. A bullish trend is suggested, but breaking below 1.3790$ could put the price under negative pressure.
Other currency pair forecasts for 29-07-2024:
- USDJPY is expected to continue its bearish trend, targeting 151.10$ next.
- GBPUSD starts the day positively but may see a bearish trend if it closes below 1.2880$.
- EURUSD shows a slight bullish bias but is expected to continue its bearish trend, targeting 1.0806$ and 1.0770$.
Disclaimer: This article is based on the opinion and analysis of economists and is not intended to incite trading or investment in specific instruments. Visitors should evaluate their trading strategies independently and consider the risk of capital loss.
Full story
The USD/CAD currency pair climbed to a fresh three-month high of 1.3800 on July 24, 2024. This followed the Bank of Canada’s decision to cut interest rates by 25 basis points to 4.5%. The rate cut was widely anticipated.
The rate cut weakened the Canadian Dollar. It reflected cooling inflationary pressures and deteriorating labor market conditions in Canada. The BoC forecasts consumer price inflation to stabilize at 2% by 2025.
It has revised its growth forecast downward to 1.2% from 1.5%. Weak oil prices further dampened the performance of the Canadian Dollar. A bleak oil demand outlook due to China’s economic challenges and easing supply concerns have contributed to the dip in oil prices.
As Canada is the leading exporter of oil to the United States, lower oil prices directly affect the value of the Canadian Dollar. At the same time, the US Dollar experienced a downturn. This followed a mixed US S&P Global flash PMI report for July.
The Composite PMI slightly improved to 55.0 from a prior reading of 54.8. However, this was not sufficient to bolster the USD significantly. The DXY index, which tracks the USD against six major currencies, dropped from a weekly high of 104.50 to 104.20. Investors are keenly awaiting the US Personal Consumption Expenditure Price Index data for June, which will be released on Friday.
The core PCE inflation, the Federal Reserve’s preferred inflation measure, is expected to have decelerated to 2.5% from May’s 2.6%. The monthly figure is estimated to grow by 0.1%. Several key factors impact the Canadian Dollar.
These include interest rates set by the Bank of Canada, which affect borrowing costs for banks and consumers. Higher interest rates typically support the CAD. Oil prices also have a significant impact on the CAD, as oil is Canada’s largest export.
Higher oil prices are generally positive for the CAD, while lower prices are negative. Macroeconomic indicators such as GDP, employment, and consumer sentiment also influence the CAD. A strong economy supports the currency, while weak economic data can lead to a decline in value.
Higher inflation often prompts central banks to raise interest rates, which can attract foreign investment and boost the currency’s value.
usd/cad hits three-month high
Risk sentiment plays a crucial role as well.
Risk-on environments, where investors seek higher returns, can be CAD-positive. Risk-off phases, where investors seek safe havens, can negatively affect the CAD. As Canada’s largest trading partner, the health of the US economy significantly influences the CAD.
Strong US economic performance can have positive spillover effects on Canada. The USDCAD price tested 1.3845$ and found solid resistance. It awaits positive momentum to breach this level and potentially rally towards the next target of 1.3977$.
Analysts suggest a bullish trend for the upcoming period. However, breaking below 1.3790$ could put the price under negative pressure, potentially leading it to 1.3690$ before any new attempt to rise. The expected trading range is 1.3760$ support to 1.3900$ resistance, with a bullish trend forecast.
In other currency pairs, the USDJPY price hovers around 153.65$, confined within a bearish flag pattern. Analysts expect the bearish trend to continue, targeting 151.10$ next. The EMA50 supports this bearish wave, contingent on the price remaining below 153.65$ and 154.35$.
The GBPUSD starts the day positively, attacking the 1.2880$ level. However, analysts depend on the last daily close below this level to suggest a bearish trend, targeting 1.2830$ and 1.2780$ next. The EMA50 supports the bearish wave.
Consolidating above 1.2880$ could lead to gains and a return to the bullish trend. The EURUSD price shows a slight bullish bias, approaching the key resistance at 1.0880$. Stochastic indicates overbought conditions, and the EMA50 applies negative pressure.
The bearish trend is expected to continue, starting with a break below 1.0840$, targeting 1.0806$ and 1.0770$. Breaching 1.0880$ would halt the current bearish correction, resuming the bullish trend. This article is based on the opinion and analysis of economists and is not intended to incite trading or investment in specific instruments.
Visitors should evaluate their trading strategies independently and consider the risk of capital loss. Seeking advice from a professional financial advisor is recommended. Provided rates are indicative only and not for trading purposes.
No responsibility is assumed for financial loss resulting from using this information.
- FXStreet.”USD/CAD posts fresh three-month high near 1.3800 as BoC cuts rates again”.
- Economies.”The USDCAD price needs additional positive momentum – Forecast today – 29-07-2024″.
- FXStreet.”USD/CAD depreciates to near 1.3800 due to higher crude Oil prices”.