USD/CAD Forecast: Canadian Dollar Near Recent 5-Month Lows

Republished By Plato

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Data from the US last week indicated higher-than-expected inflation in the country.

Investors have pushed back the possible timing for the first Fed cut to July or September.

Canada’s economy is deteriorating due to the high borrowing costs.

There is more upside potential in the USD/CAD forecast as the Canadian dollar hovers near a five-month low hit on Friday last week. Economic indicators from the US and Canada have supported a rally in the USD/CAD pair as they show a growing divergence in monetary policy outlooks.

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Data from the US last week indicated higher-than-expected inflation in the country. Consequently, the Fed will likely wait and watch, keeping interest rates high. Moreover, investors have pushed back the timing for the first cut to July or September.

Meanwhile, Canada’s economy is deteriorating due to the high borrowing costs. At the same time, inflation has eased significantly. Higher interest rates have had a bigger negative impact in Canada than in the US. Therefore, there is little stopping the Bank of Canada from starting rate cuts in June. Markets are placing a near 50% chance that the BoC will cut in June. Consequently, interest rates might decline in Canada before they do in the US. This has put the Canadian dollar in a weak position compared to the US dollar.

Furthermore, investors expect data on retail sales from the US to show the state of consumer spending. More upbeat data would widen the policy divergence between the Fed and the Bank of Canada.

Meanwhile, oil prices fell on Monday despite Iran’s attack on Israel over the weekend. Notably, Israel said the attack caused minor damage.

USD/CAD key events today

US Core retail sales m/m
Empire State Manufacturing Index
US retail sales m/m

USD/CAD technical forecast: Bullish momentum above 1.3700

On the technical side, the USD/CAD price is on a strong bullish trend. This trend comes after the price broke out of its shallow bullish channel. The break above the channel resistance showed that bulls were ready to make bigger swings above the 30-SMA. At the same time, it indicated a surge in bullish momentum as the RSI rose to the overbought region.

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Currently, the price sits between the 1.3700 support and the 1.3800 resistance. Given the solid bullish bias, it might reach the resistance level soon.

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