The USDCAD currency pair showed strong growth during Tuesday's trading session, balancing the losses of the previous two days. A «bullish engulfing» pattern was formed on the chart, indicating a high probability of the continued upward movement. Now the price has returned above the 1.37 level, and as the next target the bulls will surely choose the semi-annual high of 1.3785 set in early October. Fundamental factors also speak in favor of USDCAD growth.
Today the Bank of Canada will hold this year’s penultimate monetary policy meeting. Analysts' consensus forecast suggests that the key rate will remain at the current level of 5% for the second time in a row. As a result, the U.S. dollar's yield advantage over the Canadian currency will remain unchanged. Aaron Hurd, senior portfolio manager at State Street Global, expects a continuation of this pattern in the currency market for the next few quarters due to a rapid slowdown in the Canadian economy.
Canadian GDP growth basically stopped in July and August. At the same time, September inflation dropped more strongly than expected, from 4% to 3.8%. Retail sales statistics released on Friday showed a decline of 0.1% and speaks in favor of the Canadian economy's transition to stagnation.
Over the past week, market participants have reduced the likelihood of a key rate hike by the Bank of Canada from 43% to 13%. Most economists polled by Reuters expect the monetary easing cycle to begin in the second quarter of 2024, earlier than in the United States. Royce Mendes, chief strategist at Desjardins Group, predicts the Canadian regulator's officials to stick to tight policy at today's meeting. However, it is unlikely to help the national currency to strengthen against the U.S. dollar.
Further outlook for USDCAD will be defined near the 1.3785 level. If this level is immediately crossed from below, buyers will change the target to the March high of the current year at 1.386. In case of the bears’ counterattack, quotes will search for support at 1.37, but this scenario is less likely.
The following trading strategy may be offered:
Buy USDCAD at the current price. Take profit – 1.3785. Stop loss – 1.37.
Traders may also use the Trailing stop instead of the fixed Stop loss at their discretion.
This content is for informational purposes only and is not intended to be investing advice.
