USD/CAD Price Forecast: Loonie Gains Continue Post US CPI

USD/CAD PRICE, CHARTS AND ANALYSIS:

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MOST READ: US Dollar (DXY) Technical Forecast: DXY at the Mercy of US Data with Inflation Ahead Next Week

USD/CAD FUNDAMENTAL OUTLOOK

USD/CAD has continued its slide today to test the top of the range breakout which finally occurred last week. Falling WTI Oil prices however may hinder the loonie as it looks to post further gains against the greenback. Further upside still seems like the path of least resistance at present; however, this week’s uncertainty and caution continues to weigh on the US Dollar.

The overall fundamental picture still favors the bulls moving forward as the despite recent developments I still think the Fed are likely to hike rates at its meeting next week. The question is whether it will be 25bps or whether the Fed will not raise rates at all, with market expectations now all but ruling out the probability of a 50bps hike. Today we also heard from Moody’s who stated that their base case is for the US Fed’s monetary tightening to continue, which could deepen some US banks’ challenges.

Source: CME FedWatch Tool

The Bank of Canada (BoC) meanwhile has confirmed their belief that the current monetary policy stance is restrictive enough to tame inflation. BoC Governor Macklem did however leave the door open to further rate hikes should inflation rise once more. Recent increases in employment numbers and a higher employment cost index have reignited fears that inflation may tick higher once more. At the moment however this has not come to fruition with Canadian inflation data due next week Tuesday, which should clear things up for the BoC moving forward.

On the data front we still have quite a bit of data out of the US for the rest of the week with Retail Sales and PPI out tomorrow. The main data point that could have a significant impact on USDCAD however is the Canadian inflation print due next week Tuesday.

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TECHNICAL OUTLOOK

From a technical perspective, USD/CAD is currently retesting the range we broke out of last week which had been in play since November 2022. Yesterday’s daily candle close did complete an evening star candlestick pattern and we have had follow through today. The pair has found support at the 1.3650 handle bouncing 50-pips to trade at around the 1.3700 mark (at the time of writing).

USDCAD remains bullish unless we have a daily candle close below the 1.3580 level (blue horizontal line). I do expect the pair to find support around here before continuing its next leg higher with the 1.3900 or 1.3980 (2022 high) coming into focus.