USD/CAD nears key resistance ahead of the BoC rate decision

September 05, 2023 11:15 PM PDT | By Invezz

USD/CAD nears key resistance ahead of the BoC rate decision — Image source: Invezz

Bank of Canada decision ahead

The USD to CAD rate has been in a strong bullish trend in the past few weeks as the US dollar index (DXY) rallied. The index soared to a high of $104, the highest point in five months.

There are several reasons why the greenback is soaring. First, the American economy is doing relatively well, with the Atlanta Fed’s model estimating that it will grow by 6% in the third quarter.

Second, some analysts worry that the Federal Reserve will continue hiking interest rates in the coming meetings. The bank has already pushed rates to the highest level in more than 22 years.

Further, many investors are moving to the US, where the risk-free yield has jumped to more than 4%.

The next important catalyst for the USD/CAD pair will be the upcoming interest rate decision by the Bank of Canada decision. Analysts expect the bank to leave rates unchanged at 5%.

The decision comes at a time when the Canadian economy is slowing. Data published on Friday showed that the Canadian economy contracted in the second quarter. Inflation is also stubbornly high.

JUST IN : CANADA’S ECONOMY UNEXPECTEDLY CONTRACTED 0.2% IN 2Q, MISSING ANAYST ESTIMATES OF +1.2% pic.twitter.com/JK4vp0Weso
— GURGAVIN (@gurgavin) September 1, 2023

The most recent data showed that the consumer price index (CPI) rose to 3.3% in July. Inflation remains above the bank’s target of 2.0%. Retail sales and consumer confidence have also retreated.

Therefore, further rate hikes in Canada will lead to more weakness, which the bank will want to avoid. In a recent statement, an analyst told the WSJ:

“The slowdown in domestic activity along with signs of deflation in China and disinflation in the U.S. should put further downward pressure on Canadian consumer prices.”

USD/CAD technical analysis

USDCAD chart by TradingView

The USD to CAD exchange rate has been in a strong bullish trend in the past few weeks. It rose from a low of 1.3090 on July 13th to a high of 1.3665. The 25-day and 50-day exponential moving averages (EMA) recently made a bullish crossover.

It has also flipped the important resistance level at 1.3648, the highest point on May 1st and May 26th. Therefore, the outlook for the pair is bullish, with the next level to watch being at 1.3800. This view will be confirmed if the price rises above the descending trendline that connects the highest swings since October.

The post USD/CAD nears key resistance ahead of the BoC rate decision appeared first on Invezz.

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