USDCAD rebound brings quotes back to 1.4

On Monday, the USDCAD currency pair updated the lowest level from early November, but at yesterday's trading session the bulls still managed to seize the initiative. The rebound was strong, but there is an important level of 1.4 ahead. The 200-day moving average is now close to this mark, and it is crucial to test it for USDCAD's near-term prospects. A solid breakdown of the 1.4 level will make the USDCAD buyers more confident.

The Canadian dollar’s weakness was triggered by the country's inflation statistics for March, published on Tuesday. Price growth slowed from 2.6% to 2.3%, while the consensus forecast suggested that it would remain unchanged. Surprisingly, US trade duty threats have so far brought Canadian inflation down rather than up. Kyle Chapman of the Ballinger Group notes cheaper fuel at gas stations, as well as lower prices for travel tours and airline tickets, primarily between Canada and the United States.

With these data, the outcome of today's meeting of the Bank of Canada has become much more uncertain. Earlier, market participants expected a pause in the rate cut cycle, but now the probability of another move to ease monetary policy has exceeded 40%. Catherine Judge, economist at Canadian Imperial Bank of Commerce, encourages the regulator to avoid the fear of rising inflation and cut borrowing costs by an extra 0.25%. She believes that the first priority is to minimize damage to the Canadian economy, while accelerated price growth will be short-lived.

Meanwhile, Bloomberg analysts report that traders have lost interest in short positioning on the USDCAD pair. Late last week, the potential profit from selling the US dollar against the Canadian equivalent hit a more than six-month low. The Canadian dollar's strengthening is likely to pause, while investors wait for the US import tariffs issue to settle. This moment looks perfect for a corrective rebound in USDCAD.

The Stochastic indicator also signals buying, turning upwards from the oversold zone. The nearest target for upward movement is 1.4.

Consider the following trading strategy:

Buy USDCAD at the current price. Take profit – 1.4. Stop loss – 1.383.