USD/CAD Price Forecast: Bulls seem non-committed ahead of US inflation figures

The USD/CAD pair scales higher for the second straight day – also marking the seventh day of a positive move in the previous eight – and climbs to an over two-week high on Wednesday. The Canadian Dollar (CAD) is undermined by rising bets for another 25-basis-point (bps) rate cut by the Bank of Canada (BoC) on September 17th, bolstered by the weak domestic jobs data released last Friday. Adding to this, persistent trade-related uncertainties offset a modest uptick in Crude Oil prices. In fact, Canada is in negotiations with the US to end the tariff war. Moreover, the free trade agreement with the US and Mexico, known as the USMCA, is up for review next year, and adds a layer of uncertainty for the Canadian economy. This continues to weigh on the Loonie and acts as a tailwind for the currency pair.

The US Dollar (USD), on the other hand, struggles to capitalize on the previous day's goodish rebound from its lowest level since July 28 amid dovish Federal Reserve (Fed) expectations and caps the upside for the USD/CAD pair. An unexpectedly weak US Nonfarm Payrolls (NFP) report released last Friday provided further evidence of a softening labor market. Traders were quick to react and started pricing in the possibility of three interest rate cuts by the US Federal Reserve through the year-end. Moreover, the CME Group's FedWatch Tool points to a small chance of a more aggressive policy easing at next week's FOMC meeting. This, along with a generally positive risk tone, keeps a lid on any meaningful appreciating move for the safe-haven Greenback and the USD/CAD pair as trades keenly await US inflation figures.

The US Producer Price Index (PPI) is scheduled for release later during the North American session this Wednesday and will be followed by the US Consumer Price Index (CPI) on Thursday. Given that a 25-basis-point (bps) Fed rate cut in September is fully priced in, the data will influence market expectations about the possibility of a jumbo interest rate cut. This, in turn, will play a key role in influencing the US Dollar (USD) and determining the near-term trajectory for the USD/CAD pair. Apart from this, Oil price dynamics and trade developments would contribute to infusing some volatility around the CAD pairs.

USD/CAD daily chart

Technical Outlook

The USD/CAD bulls might now wait for sustained strength and acceptance above the 200-day Exponential Moving Average (EMA), currently pegged around the 1.3870 region, before placing fresh bets. Given that oscillators on the daily chart have been gaining some positive traction, the subsequent move up has the potential to lift spot prices beyond the 1.3900 mark, towards the next relevant hurdle near the 1.3950 region. The momentum could extend further towards reclaiming the 1.4000 psychological mark.

On the flip side, the 1.3830-1.3825 region could act as an immediate support ahead of the 1.3800-1.3790 region. A convincing break below the latter might prompt some technical selling and drag the USD/CAD pair to the 1.3755-1.3750 horizontal support. This is followed by the 1.3720 region and the 1.3700 mark. Failure to defend the said support levels would shift the near-term back in favor of bearish traders and pave the way for deeper losses.