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.

EUR/USD deflates to fresh lows, targets 1.1600

The selling pressure on EUR/USD now gathers extra pace, prompting the pair to hit fresh multi-week lows in the 1.1625-1.1620 band on Friday. The continuation of the downward bias comes in response to further gains in the US Dollar as market participants continue to assess the mixed release of US Nonfarm Payrolls in December.

GBP/USD breaks below 1.3400, challenges the 200-day SMA

GBP/USD remains under heavy fire and retreats for the fourth consecutive day on Friday. Indeed, Cable suffers the strong performance of the Greenback, intensified post-mixed NFP, and trades at shouting distance from its critical 200-day SMA near 1.3380.

Gold flirts with yearly tops around $4,500

Gold keeps its positive bias on Friday, adding to Thursday’s advance and challenging yearly highs in the $4,500 region per troy ounce. The risk-off sentiment favours the yellow metal despite the firmer tone in the Greenback and rising US Treasury yields.