USD/CAD Price Forecast: Sets to rally further

USD/CAD sees more upside as BoC Macklem kept doors open for more interest rate cuts.
Monthly Canadian Manufacturing Sales rose by 2.1%, faster than expectations of 1.3%.
The Loonie pair remains firm, holding the Ascending Triangle breakout.

Sagar Dua FXStreet

The USD/CAD pair refreshes more than a four-year high around 1.4240 on Friday. The Loonie pair performs strongly even though the US Dollar (USD) gives up intraday gains, suggesting a sharp weakness in the Canadian Dollar (CAD).

The CAD remains an underperformer, as the Bank of Canada (BoC) maintains an aggressive policy-easing stance. Price pressures have come under control, and labor demand is weak.

The BoC cuts its interest rates by 50 basis points (bps) to 3.25% on Wednesday. This was the second straight jumbo interest rate cut by the BoC. BoC Governor Tiff Macklem guided a gradual policy-easing cycle as policy rates have come down significantly. The central bank has reduced interest rates by 175 bps this year.

On the economic data front, monthly Manufacturing Sales for October were better than expected. Sales in the manufacturing sector rose by 2.1%, faster than estimates of 1.3%, after contracting by 0.6% in September, which was downwardly revised from 0.5%.

Meanwhile, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, falls after failing to sustain above the key resistance of 107.00.

USD/CAD has shown a robust rally after a breakout of the Ascending Triangle formation on a weekly timeframe, which has resulted in volatility expansion. The upward-sloping 20-week Exponential Moving Average (EMA) near 1.3900 suggests that the near-term trend is bullish.

The 14-week Relative Strength Index (RSI) oscillates in the bullish range of 60.00-80.00, suggesting a strong upside momentum.

Going forward, a decisive break above the intraday high near 1.4240 would drive the asset towards the round-level resistance of 1.4300 and 31 March 2020 high of 1.4350.

On the flip side, a downside move below the November 25 low of 1.3928 would drag the major toward the round-level support of 1.3900, followed by the November 8 low of 1.3860.

USD/CAD weekly chart

Economic Indicator

BoC Interest Rate Decision

The Bank of Canada (BoC) announces its interest rate decision at the end of its eight scheduled meetings per year. If the BoC believes inflation will be above target (hawkish), it will raise interest rates in order to bring it down. This is bullish for the CAD since higher interest rates attract greater inflows of foreign capital. Likewise, if the BoC sees inflation falling below target (dovish) it will lower interest rates in order to give the Canadian economy a boost in the hope inflation will rise back up. This is bearish for CAD since it detracts from foreign capital flowing into the country.

GBP/USD flirts with tops near 1.3470

GBP/USD manages to regain composure and challenge the area of daily highs around 1.3470 on Friday. Cable picks up pace despite marginal gains in the Greenback in a context of swelling geopolitical tensions and rising global oil prices.

Gold remains below $4,100 despite receding Fed hike bets, weak USD

Gold opens with a bullish gap at the start of a new week amid receding Fed rate-hike expectations and a bearish US Dollar. Oil prices tumbled after Trump canceled an attack on Iran and said that a deal is near, easing inflation fears. This forces traders to dial back bets on extreme Fed tightening and drags the USD to a fresh low since June 17, which, in turn, is supporting the non-yielding bullion. However, the recent repeated failures to find acceptance above $4,100 warrant caution for XAU/USD bulls.

Gold: The $4,000 mark holds the downside for now

Gold faces renewed selling pressure, falling sharply toweard the $4,000 mark per troy ounce as the US Dollar regains momentum. Escalating US-Iran tensions are keeping inflation concerns and expectations of further Fed rate hikes alive, weighing further on the yellow metal.

Week ahead: US payrolls report and AI earnings to keep investors on edge

After the Fed decision, NFP report awaited for more rate hike clues. Employment also on the agenda in Canada and New Zealand. Chinese trade and Japanese wage data to be watched too. But Iran and AI headlines to remain in driver’s seat for risk sentiment.

Middle East War updates: Trump holds off Iran strikes on pledge Hormuz deal is close

Here’s a brief recap of the key developments in the Middle East war that occurred over the weekend, which are expected to have a significant impact on markets in the upcoming week. Risk sentiment improves on Monday, undermining demand for the US Dollar Index and drag crude oil prices lower.

9-3: Is the Federal Reserve’s vote tally Warsh's new forward guidance?

The rate did not move. Neither did the statement, and that’s the more interesting fact. Set the July 29 Federal Open Market Committee (FOMC) statement beside the one issued on June 17, and the two documents are identical apart from a single verb and a paragraph at the bottom naming three dissenters.