USD/CAD Price Forecast: Bulls seem non-committed; FOMC Minutes awaited

The USD/CAD pair prolongs this week's recovery move from the 1.3685 area, or its lowest level since October 2024, for the third consecutive day and refreshes its weekly high on Wednesday. Spot prices remain below mid-1.3800s through the early part of the European session, though the supportive fundamental backdrop supports prospects for additional gains. The US Dollar (USD) adds to the previous day's mostly upbeat US macro data-inspired gains. Furthermore, weaker Crude Oil prices undermine the commodity-linked Loonie and lend support to the currency pair.

The US Census Bureau reported on Tuesday that Durable Goods Orders declined by 6.3% in April, marking a turnaround from the 7.6% increase (revised from 9.2%) in the previous month. The reading, however, was better than the market expectation for a decrease of 7.9%. Moreover, orders excluding transportation rose 0.2% during the reported month. Furthermore, the Conference Board's US Consumer Confidence Index rebounded sharply after a prolonged fall since December 2024 and shot to 98 in May. This represents a 12.3 points increase from 85.7 in April, marking the biggest monthly rise in four years on the back of the US-China trade truce, which improved the outlook for the economy and the labor market. The data calms recession fears and continues to benefit the Greenback.

However, the uncertainty around US President Donald Trump's trade policies, concerns about the worsening US fiscal situation, and dovish Federal Reserve (Fed) expectations hold back the USD bulls from placing aggressive bets. Investors remain worried that Trump’s dubbed “Big, Beautiful Bill” will add an estimated $4 trillion to the federal government's debt pile over the next decade and if passed in the Senate this week, would worsen the US budget deficit at a faster pace than previously expected. Moreover, traders have been pricing in the possibility that the Fed will step in to support the economy and deliver at least two 25 basis points (bps) rate cuts by the year-end. The bets were lifted by the softer US Consumer Price Index (CPI) and US Producer Price Index (PPI) released earlier this month.

In contrast, last week's hotter-than-expected Canadian core inflation figures dashed hopes for a Bank of Canada (BoC) interest rate cut in June. This, however, is offset by the prevalent selling bias around Crude Oil prices, fueled by expectations of more output from OPEC+, which weighs on the Canadian Dollar (CAD) and validates the positive outlook for the USD/CAD pair. Traders also seem reluctant and opt to wait for the release of FOMC Minutes, which could offer cues about the future rate-cut path and influence the USD demand. Investors this week will also confront the Prelim US Q1 GDP, the US Personal Consumption Expenditure (PCE) Price Index, and the monthly Canadian GDP print, which should provide some meaningful impetus during the latter half of the trading week.

USD/CAD 1-hour chart

Technical Outlook

The 1.3845-1.3850 region represents the 50% retracement level of the recent rejection slide from a technically significant 200-day Simple Moving Average (SMA) to the year-to-date touched earlier this week. A sustained strength beyond should allow the USD/CAD pair to climb further towards the 1.3885 region (61.8% Fibonacci retracement level) en route to the 1.3900 mark. Some follow-through buying will suggest that spot prices have formed a near-term bottom and pave the way for a further appreciation towards the 1.3945 intermediate hurdle en route to the 1.4000 psychological mark (200-day SMA) pivotal resistance.

On the flip side, the daily low, around the 1.3800 round figure, could offer immediate support, below which the USD/CAD pair could weaken to the 1.3725 intermediate support en route to the 1.3700 mark and the 1.3685 region, or the YTD trough. Failure to defend the said support levels might shift the near-term bias back in favor of bearish traders and drag spot prices to the 1.3600 round-figure mark.