The USDCAD currency pair strengthened early Wednesday in Asia, trading around 1.3678. This uptick comes amid a broad decline in the US dollar (USD), which dipped to the 104.00 support level on Tuesday. Market focus now shifts to the Bank of Canada's (BoC) interest rate decision later today.
The BoC has held its benchmark rate at 5.0% since July 2023. However, with signs of cooling inflation in Canada, markets widely expect a 25 basis point (bps) cut to 4.75%. If the BoC lowers borrowing costs, it could further diverge from the US Federal Reserve's policy stance, potentially weakening the USD against the CAD.
On the USD front, disappointing inflation data earlier this year has fueled speculation of a Fed rate cut as early as September. While markets see a low probability of a July rate cut (around 14%), expectations for a September cut are above 50%. The Fed's next meeting is scheduled for July 30-31.
Technically, the USDCAD chart on the 1-hour timeframe shows a bullish reversal with a golden cross confirmed by the 50-day and 200-day EMAs. The Ichimoku indicator is also transitioning towards bullish, with confirmation pending when the Tenkansen line crosses above the cloud.
Significantly, the price recently broke above a key resistance zone between 1.3675 and 1.3665, which is now acting as potential support. If this support holds, further upside could be seen.
Bullish momentum indicators like MACD and RSI remain in positive territory but suggest a potential pullback. The RSI recently exited overbought conditions, while the MACD histogram is currently below the signal line, indicating that bulls might be taking a breather ahead of the BoC announcement.
Forecast -0.2% vs Previous 0.4%
Forecast 173K vs Previous 192K
Forecast 54.8 vs Previous 51.3
Forecast 4.75% vs Previous 5.00%
Forecast 51.0 vs Previous 49.4
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