USD/CAD Price Analysis – Dec 10, 2024
Daily Price Outlook
During the European trading session on Tuesday, the USD/CAD currency pair continued its upward momentum, reaching a fresh four-year high of 1.4200.
However, the reason for its upward trend could be linked to the bullish US Dollar, which saw gains ahead of the release of the highly anticipated US Consumer Price Index (CPI) data for November, scheduled for Wednesday.
At the same time, the Canadian Dollar (CAD) faced ongoing pressure, further weakened by investor expectations that the Bank of Canada (BoC) could announce another interest rate cut.
Many are forecasting a 50-basis-point reduction, potentially lowering the rate to 3.25% in the upcoming monetary policy meeting on Wednesday. This outlook for the BoC has kept sentiment around the CAD cautious, as traders brace for the possibility of a more dovish stance from the central bank.
US Dollar Strengthens Ahead of CPI Data, Impacting USD/CAD Outlook
On the US front, the broad-based US Dollar strengthened ahead of the release of the US Consumer Price Index (CPI) data for November, which will be published on Wednesday.
The US Dollar Index (DXY), which tracks the Greenback against six major currencies, hit a two-day high of 106.35. The upcoming inflation data is expected to play a big role in shaping market expectations for the Federal Reserve’s (Fed) interest rate decisions.
Investors are anticipating that the Fed will cut its key borrowing rates by 25 basis points, bringing them to a range of 4.25%-4.50% at its next policy meeting on December 18, according to the CME FedWatch tool.
Economists predict that the annual headline inflation will rise to 2.7% from 2.6% in October, while the core CPI, which excludes food and energy prices, is expected to increase by 3.3%. On a month-to-month basis, headline and core CPI are projected to rise by 0.2% and 0.3%, respectively.
If the inflation data shows signs of slowing down, it could lead to more bets on a dovish Federal Reserve, meaning more rate cuts. On the other hand, if inflation remains high, it could reduce these expectations, keeping the Fed’s rate cut plans in question.
Therefore, the inflation data will likely impact the USD/CAD pair, with signs of slowing inflation boosting expectations for a Fed rate cut, strengthening the USD. Conversely, higher inflation could weaken these expectations, potentially limiting the USD’s strength against the CAD.
Weak Outlook for the Canadian Dollar as Investors Anticipate BoC Rate Cut
On the other hand, the outlook for the Canadian Dollar (CAD) remains weak as investors expect the Bank of Canada (BoC) to cut interest rates by 50 basis points to 3.25% in its upcoming meeting on Wednesday.
This expectation is driven by the current economic conditions in Canada, where the BoC is focusing on maintaining a balanced economy.
The Canadian labor market has shown a significantly lower unemployment rate, and inflation pressures are staying within the BoC's target of 2%. These factors have led to expectations that the BoC might adopt a more dovish stance, potentially lowering interest rates to support growth.
If the BoC follows through with a rate cut, it could further weaken the CAD, making the currency less attractive to investors compared to the US Dollar.
USD/CAD – Technical Analysis
The USD/CAD pair is trading at $1.4174, down 0.01%, as price action consolidates just below its pivot point at $1.41888.
The pair is exhibiting a cautious bearish tone, reflecting mixed sentiment as traders assess near-term catalysts, including broader dollar strength and oil price fluctuations, which directly influence the Canadian dollar.
The RSI at 64 signals strong momentum but suggests the pair is approaching overbought territory, potentially capping further upside.
Immediate resistance is observed at $1.42266, with additional levels at $1.42657, highlighting significant barriers for bullish advances.
On the downside, immediate support lies at $1.41456, with further safety nets at $1.41004 and $1.40660. A decisive break below the $1.41456 level could signal a continuation of bearish momentum, targeting deeper retracements.
Technical indicators support a cautious outlook. The 50-day EMA at $1.40959 aligns closely with support levels, providing a key reference for potential pullbacks.
If the pair sustains trading below the pivot, bearish pressure could intensify, targeting the $1.41409 region. Conversely, a break above $1.41888 could shift sentiment to the upside, opening the door to retest $1.42266 and higher levels.
Traders are advised to monitor the $1.41841 level for entry opportunities. Selling below this threshold with a target of $1.41409 and a stop-loss at $1.42178 aligns with the current technical landscape, offering a favorable risk-reward setup.
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