- A Bank of Canada survey showed increased expectations for lower inflation.
- Investors raised the chances of a July BoC rate cut from 77% to 80%.
- In June, economists expect inflation in Canada to ease from 2.9% to 2.8%.
The USD/CAD price analysis reveals a bullish trend as the Canadian dollar weakens amid increased chances of another Bank of Canada rate cut this month. Meanwhile, the dollar fluctuated amid increased bets for a September Fed rate cut and a higher likelihood of a Trump win.
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On Monday, the Canadian dollar plunged after a Bank of Canada survey that showed increased expectations for lower inflation in Canada. Businesses in the country expect a slowdown in input and selling prices. This means that inflation might continue falling. As a result, investors raised the chances of a July rate cut from 77% to 80%.Â
However, this outlook might change significantly with Tuesday’s inflation report. The last report showed a spike in inflation that led to a decline in BoC rate cut expectations. In June, economists expect the figures to ease from 2.9% to 2.8%. A bigger-than-expected decline would increase the chances of a cut this month. On the other hand, if there is another spike, the Bank of Canada might maintain rates this month, propelling the Canadian dollar higher.
Meanwhile, the dollar initially rose on Monday as Trump’s assassination attempt raised the chances he would win November’s election. A Trump win would benefit the dollar. However, the move reversed when Powell spoke, indicating increasing confidence that inflation will reach the 2% target. As a result, markets moved to fully price in a rate cut in September.
USD/CAD key events today
- Canada Consumer Price Index
- US retail sales report
USD/CAD technical price analysis: Bullish momentum pauses at 0.618 Fib
On the technical side, the USD/CAD price has met solid resistance at the 0.618 Fib retracement level. Bulls have been in control since they took over at the 1.3600 key level. However, the price has risen well above the 30-SMA and might need to pull back before continuing higher.
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If the Fib level holds strong, the price might pause or revisit the SMA. If the price remains above the SMA, the bullish trend will continue. A break above the Fib level would allow the price to reach the 1.3750 resistance level.
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