The USD/CAD pair is gaining strength and aiming to break above the 1.3800 resistance level as investors anticipate that the Bank of Canada (BoC) will cut interest rates by 50 basis points in an upcoming meeting. The Canadian economy is in need of more stimulus to boost overall demand and job growth, leading to expectations of a larger rate cut by BoC. This would be the fourth consecutive rate cut by the BoC this year, with the Consumer Price Index falling below the bank’s target of 2%.
The US Dollar is facing challenges in extending its upside momentum as investors are seeking clarity on the Federal Reserve’s interest rate outlook for the remainder of the year. Market participants are anticipating further interest rate cuts of 25 basis points each in November and December. The USD/CAD pair experienced a strong buying interest after a Double Bottom formation near 1.3440 on a daily timeframe, with a bullish reversal confirmed after breaking above the September high around 1.3650.
The near-term outlook for the USD/CAD pair has strengthened with the 20- and 50-day Exponential Moving Averages delivering a bull cross near 1.3600. The 14-day Relative Strength Index (RSI) is indicating an active momentum in the bullish range of 60.00-80.00. If the pair manages to decisively break above the 1.3800 resistance level, it could target highs around 1.3846 and 1.3945. On the downside, a move below 1.3650 could expose the pair to support levels near 1.3600 and 1.3538.
The BoC’s interest rate decision is a key economic indicator that can significantly impact the USD/CAD pair. The BoC announces its interest rate decision at the end of its scheduled meetings and adjusts rates based on inflation targets. A hawkish stance with higher interest rates is bullish for the CAD, while a dovish stance with lower rates is bearish for the CAD as it affects foreign capital flows. The next BoC interest rate decision is expected on Wednesday, with previous rates at 4.25% and a consensus of 3.75%.
In conclusion, the USD/CAD pair is poised for a potential breakout above the 1.3800 level as investors anticipate a significant rate cut by the BoC. The weakening Canadian Dollar and uncertainties surrounding the Fed’s interest rate outlook are influencing the pair’s movements. Traders should closely monitor upcoming economic indicators and central bank decisions for further insights into the USD/CAD pair’s direction in the near future.
