USD/CAD Price Forecast: Bulls need to wait for acceptance above 1.3900, US macro data in focus

The USD/CAD pair extends its sideways consolidative price move near a three-month peak touched on Monday, with bulls now awaiting a sustained strength beyond the 1.3900 mark before placing fresh bets. A combination of factors might continue to weigh on the Canadian Dollar (CAD), which, along with the emergence of some US Dollar (USD) dip-buying, suggests that the path of least resistance for spot prices remains to the upside. 

Investors now seem convinced that the Bank of Canada (BoC) will continue an aggressive policy-easing stance in the next policy meeting in December. The bets were reaffirmed by comments from BoC Governor Tiff Macklem, saying that the central bank intends to continue cutting its policy rate if the economy aligns with the forecast. Furthermore, the recent slump in Crude Oil prices, triggered by concerns about flagging global demand growth and easing fears of a further escalation of tensions in the Middle East, could undermine the commodity-linked Loonie. 

In fact, Iran on Saturday indicated that it will not retaliate to Israeli strikes on military targets across its territory if a deal is reached for a ceasefire agreement in the Gaza Strip and Lebanon. Meanwhile, the US on Monday said it plans to buy up to 3 million barrels of oil for the Strategic Petroleum Reserve (SPR) for delivery through May next year. This, however, does little to lend any support to Crude Oil prices. That said, some element of geopolitical risks remain in play, which, in turn, should help limit any further near-term depreciating move for the black liquid. 

Meanwhile, the USD regains some positive traction and stalls the overnight retracement slide from its highest level since July 30 amid firming expectations that the Federal Reserve (Fed) will proceed with smaller rate cuts amid a still resilient US economy. This, along with concerns that the spending plans of Vice President Kamala Harris and the Republican nominee Donald Trump will further increase the deficit, remains supportive of elevated US Treasury bond yields. This, in turn, favors the USD bulls and validates the near-term positive outlook for the USD/CAD pair. 

Traders now look to Tuesday's US economic docket – featuring the release of the Conference Board's Consumer Confidence Index and Job Openings and Labor Turnover Survey (JOLTS) report. The data might influence the USD, which, along with Oil price dynamics, should provide some impetus to the USD/CAD pair. The focus, however, will remain glued to this week's other important US macro releases – the Advance Q3 GDP print, the Personal Consumption Expenditures (PCE) Price Index and the closely-watched Nonfarm Payrolls (NFP) report.

Technical Outlook

From a technical perspective, the recent uptrend witnessed over the past two weeks or so has been along an ascending channel and supports prospects for additional gains. That said, the Relative Strength Index (RSI) on the daily chart is already flashing slightly overbought conditions and warrants some caution for bulls. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for an extension of the well-established bullish trend. 

Meanwhile, any meaningful corrective slide is likely to find decent support near the 1.3845 region, representing the lower end of the aforementioned trend channel. A convincing break below might prompt some technical selling and drag the USD/CAD pair below the 1.3800 mark, towards testing the next relevant support near the 1.3750-1.3745 area. The latter should act as a strong base for spot prices, which if broken might shift the bias in favor of bearish traders. 

On the flip side, the 1.3900-1.3910 area, or a multi-month peak touched on Monday, could offer immediate resistance, above which the USD/CAD pair could aim to challenge the year-to-date (YTD) peak near the 1.3945 region touched in August. Some follow-through buying should pave the way for strength towards reclaiming the 1.4000 psychological mark for the first time since May 2020 en route to the next relevant hurdle near the 1.4060 region.

USD/CAD 4-hour chart