USD/CAD Price Analysis – Nov 19, 2024
Daily Price Outlook
The Canadian dollar is gaining momentum ahead of today's crucial inflation report, with USD/CAD indicating a possible turnaround to start the week.
However, whether this momentum lasts beyond the near term will most likely be determined by adjustments in US interest rate expectations rather than domestic causes.
The USD/CAD is traded currently at 1.402 with 0.09% increase from yesterday. Markets expect Donald Trump's administration to revive inflation and halt the Federal Reserve's rate decreases.
This, in turn, adds to the USD's gains. Futures markets suggest a 58.7% chance of a Fed rate cut in December, however expectations for rate cuts through 2025 have dropped to 77 basis points (bps).
Geopolitical Tensions Boost US Dollar
The return of geopolitical tensions in the Middle East and on the Russia-Ukraine front bolsters safe-haven currencies such as the Greenback. CNN News claimed on Sunday, citing two US sources, that US President Joe Biden's administration had authorised Ukraine to use US armaments to strike inside Russia, a significant shift in Washington's attitude towards the Ukraine-Russia conflict.
Investors will keep an eye on developments related to geopolitical threats. Any hints of escalation may cause the US Dollar (USD) to rise against the Loonie.
Inflation Report in Focus as BoC Faces Key Decisions on Rate Cuts
Today's inflation report stands out amid a lacklustre global data week. The annual CPI rate is predicted to rise from 1.6% to 1.9% in October, approaching the middle of the Bank of Canada's (BoC) 1-3% target range. Core inflation, which is the average of Statistics Canada's trim and median CPI estimates, is predicted to be 2.4%, slightly higher than September's rate.
With the BoC expecting core inflation of 2.3% by December, a result that meets market expectations should do little to dampen the belief that further rate cuts are on the way. However, if an upside surprise occurs, the Bank of Canada may begin to decrease the rate of easing.
In the policy statement released on October 23, the BoC stated that the timing and speed of additional policy rate cuts will be determined by "incoming information and our estimation of its implications for the inflation outlook.
BoC Easing Cycle: Quick Start, Sluggish End
Swaps markets are divided on whether the Bank of Canada would drop interest rates by another 50 basis points at its next meeting, following the reduction in October. Traders are currently leaning towards a lower 25-point cut, with a 50-point move seen as a 44% probability.
Looking further ahead, the easing cycle is projected to slow significantly. Markets are pricing in a cumulative 88 basis point decrease by September 2025, indicating a more gradual approach.
USD/CAD – Technical Analysis
USD/CAD is trading at $1.40166, down 0.02%, as bearish momentum takes hold on the 4-hour chart. The pair is currently below the pivot point at $1.40263, signaling potential downward pressure.
Immediate resistance stands at $1.40489, followed by $1.40711 and $1.41016, which could act as hurdles for any rebound attempts. On the downside, immediate support lies at $1.39888, with further levels at $1.39599 and $1.39303 providing key zones for bearish targets.
The 50-day EMA at $1.40329 adds to the resistance, reflecting near-term selling bias. Meanwhile, the RSI at 39 highlights bearish momentum but suggests the pair is nearing oversold conditions, which could trigger short-term consolidation. If USD/CAD breaks below $1.39888, it could test $1.39599, but a reversal above $1.40263 would shift the focus back to resistance at $1.40489.
For traders, short positions below $1.40260 align with the bearish outlook. A take-profit at $1.39882 offers a reasonable target, while a stop-loss at $1.40490 helps manage risk.
Selling below $1.40260 with a take-profit at $1.39882 and a stop-loss at $1.40490 aligns with the bearish trend while offering balanced risk management.
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