USD/CAD Price Forecast: Seems vulnerable amid reduced BoC rate cut bets; FOMC minutes awaited

The USD/CAD pair meets with a fresh supply on Wednesday and for now, seems to have stalled a two-day-old recovery move from the vicinity of a two-month low, around mid-1.4100s touched last week. Investors trimmed their bets for another interest rate cut by the Bank of Canada (BoC) in March in reaction to a slight acceleration in Canadian consumer inflation. Apart from this, a further recovery in Crude Oil prices underpins the commodity-linked Loonie, which, along with the emergence of fresh US Dollar (USD) selling, is seen exerting downward pressure on the currency pair. 

The latest data published by Statistics Canada on Tuesday showed that the headline Consumer Price Index (CPI) rose 0.1% in January as compared to a 0.4% drop recorded in the previous month. Furthermore, the yearly rate came in at 1.9%, while the BoC's Core CPI —which strips out volatile categories like food and energy—climbed to 2.1% YoY, up from the 1.8% previous. This comes on top of strong Canadian jobs data released earlier this month and forced investors to further scale back their bets that the BoC will cut the policy rate at its next monetary policy meeting on March 12. 

Meanwhile, Crude Oil prices prolong this week's recovery move from the year-to-date for the third straight day in the wake of the Ukrainian drone attack on Russia and fears that cold weather in the US may curtail supply. This turns out to be another factor lending some support to the Canadian Dollar (CAD). The USD, on the other hand, is pressured by the growing acceptance that the Federal Reserve (Fed) will cut interest rates further, bolstered by a surprise drop in US Retail Sales. Adding to this, a positive risk tone further dents demand for the safe-haven buck and weighs on the USD/CAD pair. 

Traders, however, seem reluctant and opt to wait for the release of the crucial FOMC meeting minutes, due later during the US session. The minutes will be scrutinized closely for cues about the Fed's future rate-cut path, which, in turn, will play a key role in influencing the USD and provide some impetus to the USD/CAD pair. Furthermore, Oil price dynamics should contribute to producing short-term trading opportunities. Meanwhile, the uncertainty over US President Donald Trump's trade policies warrants some caution for bearish traders and positioning for further weakness in the currency pair. 

USD/CAD daily chart

Technical Outlook

From a technical perspective, last week’s breakdown below the 1.4260-1.4255 horizontal support was seen as a key trigger for bearish traders. Moreover, oscillators on the daily chart are holding deep in negative territory and are still far from being in the oversold zone. This, in turn, suggests that the path of least resistance for the USD/CAD pair is to the downside. 

Some follow-through selling below the 1.4150 immediate support will reaffirm the negative bias and drag spot prices to the 1.4100 round figure. The downward trajectory could extend further towards an intermediate support near the 1.4035 regio. The USD/CAD pair would eventually drop towards testing the 1.4000 psychological mark.

On the flip side, any meaningful recovery beyond the overnight swing high, around the 1.4215 zone, is likely to confront stiff resistance and remain capped near the 1.4255-1.4260 support breakpoint. A sustained strength beyond the latter, however, could trigger a short-covering rally and allow the USD/CAD pair to reclaim the 1.4300 round-figure mark.