USD/CAD Price Forecast: Climbs further beyond 1.3800 ahead of Canadian CPI report

The USD/CAD pair prolongs its upward trajectory for the tenth straight day and climbs further beyond the 1.3800 mark, hitting its highest level since August 6 during the early part of the European session on Tuesday. The positive momentum is sponsored by sustained US Dollar (USD) buying and the ongoing slump in Crude Oil prices, which tend to undermine demand for the commodity-linked Loonie.

Traders have now fully priced out the possibility of a more aggressive policy easing by the Federal Reserve (Fed) and no longer expect another oversized interest rate cut in November. This has been a key factor behind the recent upswing in the US Treasury bond yields, which keeps the US Dollar (USD) well supported near a two-month peak and continues to act as a tailwind for the USD/CAD pair. 

Apart from this, persistent geopolitical risks stemming from the ongoing conflicts in the Middle East contribute to driving haven flows towards the Greenback. In fact, Israel vowed a forceful response to Hezbollah’s drone attack on its army base on Sunday, which killed four soldiers and wounded seven others. This fuels concerns about a broader regional war in the Middle East and boosts traditional safe-haven assets. 

Meanwhile, a report on Monday suggested that Israel will not attack Iran’s oil and nuclear facilities, easing fears of a supply disruption. Furthermore, a fall in China's oil imports for the fifth straight month raised concerns about weak demand in the world's top importer. Adding to this, OPEC lowered its forecast for global oil demand growth in 2024 and 2025, which led to a further slump in Crude Oil prices. 

This, to a larger extent, overshadows diminishing odds for a larger rate cut by the Bank of Canada (BoC) following the release of Friday's upbeat Canadian jobs data. It, however, remains to be seen if bulls can capitalize on the move ahead of the Canadian consumer inflation figures, due later today. Apart from this, the Empire State Manufacturing Index and Fedspeak could provide some impetus to the USD/CAD pair. 

Technical Outlook

From a technical perspective, the Relative Strength Index (RSI) on the daily chart is flashing slightly overbought conditions and warrants some caution for bullish traders. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for any further appreciating move. 

That said, any corrective slide is likely to find some support near the daily swing low, around the 1.3785-1.3780 region, below which the USD/CAD pair could slide to mid-1.3700s. Any further downfall, however, might be seen as a buying opportunity and remain limited near the 1.3700 round figure. 

On the flip side, the next relevant hurdle is pegged near the 1.3850 region. Some follow-through buying should allow the USD/CAD pair to aim to reclaim the 1.3900 mark. The positive momentum could extend further towards the 1.3945 area or a nearly two-year high touched in August. 

USD/CAD daily chart