The USD/CAD pair is on a winning streak, aiming to surpass the 11-month high of 1.3840 before the Bank of Canada announces its interest rate decision on Wednesday. Economists are predicting a 50 basis point (bps) rate cut by the BoC, reducing the interest rate to 3.75%. Despite low inflation and a high jobless rate, continuous rate cuts are expected to keep the Canadian Dollar (CAD) weak compared to other major currencies. This move is part of a broader trend of global central banks easing their monetary policies.
The strength of the US Dollar (USD) has also contributed to the USD/CAD pair’s upward momentum. The US Dollar Index (DXY) is gaining ground, driven by uncertainty surrounding the US presidential elections, which has increased the appeal of the USD as a safe haven currency. Additionally, a breakout above the September 19 high around 1.3650 has attracted strong buying interest in the USD/CAD pair. The 20 and 50-day Exponential Moving Averages (EMAs) are sloping higher, indicating a positive outlook for the pair.
The 14-day Relative Strength Index (RSI) is displaying active momentum within the bullish range of 60.00-80.00, further supporting the upside potential for the USD/CAD pair. If the pair manages to decisively break above the April 16 high of 1.3846, it could target the round-level resistance of 1.3900 and the Year-To-Date (YTD) high of 1.3945. On the other hand, a move below the September 19 high around 1.3650 may expose the pair to lower support levels near 1.3600 and 1.3538.
The Canadian Dollar’s value is influenced by various factors such as interest rates set by the Bank of Canada (BoC), the price of oil, the country’s largest export, the economy’s health, inflation, and the Trade Balance. Market sentiment, particularly the appetite for risk-on assets, also plays a significant role in determining the CAD’s performance. Additionally, the health of the US economy, Canada’s largest trading partner, impacts the Canadian Dollar.
The BoC plays a crucial role in influencing the Canadian Dollar by adjusting interest rates to maintain inflation levels. Higher interest rates are generally positive for the CAD. The BoC can also use quantitative easing and tightening to shape credit conditions, which can affect the CAD’s value accordingly. The price of oil, being Canada’s major export, has a direct impact on the CAD. Rising oil prices typically lead to an appreciation of the Canadian Dollar, while falling prices have the opposite effect.
Inflation, which was traditionally viewed as negative for a currency, can now have positive implications in modern times due to increased global capital flows. Higher inflation can prompt central banks to raise interest rates, attracting more capital inflows and boosting demand for the local currency. Economic data releases such as GDP, PMIs, and employment reports can also influence the Canadian Dollar’s direction. A strong economy, coupled with favorable economic indicators, tends to support a higher value for the CAD. On the other hand, weak economic data can lead to a depreciation of the Canadian Dollar.
