USD/CAD Price Analysis – Sep 17, 2024
Daily Price Outlook
During the European trading session, the USD/CAD pair struggled to maintain its recovery and slipped back to around 1.3584. The drop can be largely attributed to the weakening US dollar, which has faltered due to strong expectations of a significant Federal Reserve rate cut.
On the Canadian side, the CAD might be facing pressure from rising hopes for further interest rate cuts by the Bank of Canada (BoC).
Meanwhile, the recent remarks by BoC Governor Tiff Macklem have added to this downward pressure. Macklem hinted at the possibility of speeding up rate reductions, even suggesting a potential 50 basis point cut if economic conditions don't improve. This commentary, reported by the Financial Times, has contributed to the CAD's decline.
Impact of Fed Rate Cut Expectations and Treasury Yields on USD/CAD
On the US front, the broad-based US dollar is facing challenges due to increasing expectations of an aggressive Federal Reserve rate cut. The market is now anticipating a 50 basis point cut at the Fed's meeting on Wednesday, which could pressure the USD/CAD pair.
However, stronger US Treasury yields may provide some support for the dollar. According to the CME FedWatch Tool, there's a 38% chance of a 25 basis point rate cut and a 62% chance of a 50 basis point cut, up from 50% just a day earlier.
This reflects growing expectations for more aggressive monetary easing. Traders will also be keeping an eye on Canada’s Consumer Price Index (CPI) data for August, set to be released later in the North American session.
The anticipated aggressive Fed rate cut and strong US Treasury yields may limit the USD/CAD pair's upside. The increased chance of a 50 basis point cut adds pressure on the USD, potentially weakening its position against the CAD.
Canadian Dollar Under Pressure Amid Bank of Canada Rate Cut Expectations and Upcoming CPI Data
On the other hand, the Canadian Dollar (CAD) is facing downward pressure from expectations of more interest rate cuts by the Bank of Canada (BoC). Recent comments from BoC Governor Tiff Macklem have intensified this pressure.
Macklem hinted that the BoC might accelerate its rate cuts, potentially implementing a 50 basis point reduction if economic growth falters. This has raised concerns about further weakening of the CAD.
Traders will be closely watching Canada’s Consumer Price Index (CPI) data for August, which is set to be released later in the North American session. This inflation report could provide new insights into the Bank of Canada’s future policy decisions, especially as they prepare for their October meeting.
The CPI data will be crucial in determining whether the BoC will follow through on its plans for additional rate cuts, influencing the CAD’s performance in the currency markets.
USD/CAD - Technical Analysis
The U.S. dollar (USD/CAD) is trading at $1.35918, up 0.08% on the day, reflecting a mild upward movement as the pair inches above the key pivot point at $1.3583.
The 4-hour chart shows steady price action, with the 50-day EMA positioned at $1.3567 providing a supportive floor for bulls.
Immediate resistance stands at $1.3615, and a break above this level could pave the way for further gains toward $1.3640 and $1.3662.
Despite the upward momentum, the RSI is neutral at 55, suggesting that neither bulls nor bears have full control at the moment. However, the pair remains above the 50-day EMA, signaling that buyers still hold an edge.
On the downside, support is found at $1.3548, with subsequent levels at $1.3519 and $1.3486, should selling pressure intensify.
Traders looking to capitalize on bullish momentum could consider buying above $1.35833, targeting $1.36262, with a stop loss placed near $1.35568 to manage downside risk. However, a failure to hold above $1.3583 could see the pair test lower supports.
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