The USDCAD currency pair ended this summer at semi-annual lows, but with the onset of fall, quotes began to rebound upwards. Prices promptly reached the nearest growth target at the 23.6% Fibonacci level (mark 1.356). Here one can notice some deceleration of buying, but the potential for continuation of the upward movement remains significant. If today's news from Canada is in line with expectations, USDCAD will not need much time to move up to the 38.2% Fibonacci level (1.3635).
On Wednesday, the Bank of Canada will hold a regular meeting, at which it may reduce the key rate for the 3rd time in a row. Economists surveyed by Bloomberg expect such a decision from the bank. According to their forecasts, a series of successive monetary policy easing will last until the middle of 2025, when the Bank of Canada rate will reach the level of 3%. Claire Feng from Royal Bank of Canada considers such a scenario to be very likely, especially since the Fed is about to start similar actions in the U.S.
Royce Mendes, managing director at Desjardins Securities, sees room for more aggressive policy easing by the Bank of Canada than the standard 25 basis point moves. In his view, the inflation problem has now faded into the background, and the main focus of the bank should be on the labor market and GDP growth rates. Excluding government spending and emigration, the Canadian economy has virtually stopped growing.
Bloomberg analysts also pay attention to a sharp closing of short positions on the Canadian dollar in August. The relevant figure fell from $14 billion to $8 billion in just one month. Charu Chanana of Saxo Markets considers this a big risk for the Canadian currency, especially in case of a sharp strengthening of the U.S. dollar. He recalls that the difference in yields between U.S. bonds and Canadian securities continues to play in favor of the U.S. currency.
Technical indicators RSI and Stochastic on the daily chart of USDCAD confirm the reversal and indicate further upward movement of quotes. The next target of the bulls may be the level of 1.3635.
Consider the following trading strategy:
Buy USDCAD at the current price. Take profit – 1.3635. Stop loss – 1.344.
This content is for informational purposes only and is not intended to be investing advice.
