USDCAD continued its downward movement this week and reached the key level of 1.36. This level was the strong resistance at the beginning of the year. Since May it has been the support that has prevented all of the bears' attempts to break below it. The pair's approach to this level, coupled with the absence of any significant growth impulses for the past three weeks, increases the likelihood of a corrective upward bounce. The next target for USDCAD buyers is a return to the 1.365 level.
Forex market participants continue to sell the U.S. dollar in anticipation of an imminent easing of monetary policy by the Federal Reserve. However, the speed and extent of rate cuts may disappoint optimistic investors. Yesterday the representative of the American regulator Michelle Bowman pointed this out. According to her, inflation risks remain on the agenda and too much attention was paid to the July employment report. The 0.25% rate cut in September does not guarantee the same steps at the next Fed meetings.
Meanwhile, Canada made further progress in the fight against excessive price increases. Statistics for July reflected a slowdown in inflation from 2.7% to 2.5%, the lowest since March 2021. The services sector remains the only source of higher price growth compared to the Bank of Canada's 2% target. But even here, inflation is gradually normalizing, with the corresponding indicator falling from 4.8% to 4.4% last month.
Traders increased their expectations for the Bank of Canada's monetary easing. They believe that the regulator will cut the key interest rate by another 0.25% on September 4, and then do the same at its October and December meetings. Andrew DiCapua, an economist at the Canadian Chamber of Commerce, says the Bank of Canada's top priority in the current situation is to support weak economic growth. The Q2 GDP data to be released on August 30th may increase the pressure on the country's financial regulator to further lower borrowing costs.
The RSI indicator on the daily chart of USDCAD has reached the oversold zone and is turning upward, confirming a buy signal. The price may rise to 1.365 in the near future.
Consider the following trading strategy:
Buy USDCAD above the level of 1.36. Take profit — 1.365. Stop loss — 1.356.
This content is for informational purposes only and is not intended to be investing advice.
