USD/CAD Price Analysis: BoC’s Rate Cut Plan Weighs on Loonie

• Last week, the Bank of Canada became the first G7 central bank to cut interest rates.

• Investors are pricing in a 55% chance that the Bank of Canada will cut rates in July.

• Safe-haven demand for the dollar increased with the recent snap election announcement in France.

The USD/CAD price analysis indicates a bullish trend as the Canadian dollar depreciates following the BoC’s reaffirmation of its intention to cut rates. The loonie was also weighed down by a stronger dollar, which rose on safe-haven demand.

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Notably, the Bank of Canada became the first G7 central bank to cut interest rates last week, weakening the Canadian dollar. Moreover, on Thursday, Bank of Canada Deputy Governor Sharon Kozicki signaled more rate cuts if inflation continues to ease. However, she noted that policy decisions will heavily rely on incoming data. Currently, investors are pricing in a 55% chance that the Bank of Canada will cut rates in July.

Meanwhile, the dollar was on the front foot on Friday as safe-haven demand increased with the recent announcement of a snap election in France. At the same time, investors were still digesting the Fed’s forecast for only one rate cut in December despite cooling inflation. 

Fed policymakers sounded more hawkish than expected on Wednesday, emphasizing the need for patience with rate cuts. Fed Chair Powell noted that the US economy remains robust despite lower inflation, a more hawkish assessment than the market had expected after the softer consumer inflation figures. 

However, investors are holding on to bets that there will be two rate cuts this year. Notably, unemployment claims rose last week, and wholesale inflation fell more than expected. 

USD/CAD key events today

• Prelim UoM consumer sentiment

USD/CAD technical price analysis: Bulls eye 1.3780 resistance

On the technical side, the USD/CAD price has broken above the 30-SMA and is approaching the 1.3780 resistance level. At the same time, the RSI has broken above 50 and now supports solid bullish momentum. This move comes after the price met a solid barrier at 1.3780 and pulled back to retest the recently broken channel resistance and the 1.3700 level.

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After the pullback, bulls will be looking for a new high. This means the price might soon challenge the 1.3780 resistance level. A break above this level would strengthen the bullish bias and confirm a bullish trend with a higher high.

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