Fed meeting outcome could accelerate USDCAD's rebound toward 1.375

On Monday, the USDCAD currency pair hit its lowest level since last autumn before rebounding. Notably, this upward correction occurred despite renewed strength in oil prices, which traditionally supports the Canadian dollar. Ahead of today's key events, bulls may have taken profits amid fears of US dollar strength. However, the pair retains upside potential and could test the 1.375 level in coming days.

On Wednesday, the Federal Reserve will announce its latest policy decision. While recent inflation and retail sales data suggest grounds for monetary easing, Barclays analysts downplay their significance. They argue greater attention should be paid to the yet-to-materialize economic impact of new import tariffs. That is why Fed officials are likely to maintain their pause in the rate-cutting cycle.

According to Reuters experts, investors will primarily be interested not in Jerome Powell's comments on interest rates, but in the updated economic forecasts. Compared to March, the Fed's inflation expectations will almost certainly be revised upward, states Michael Feroli of JP Morgan. And although the US GDP growth estimate may also be downgraded, this will not put significant pressure on the dollar's exchange rate. 

At the same time, the outlook for the Canadian dollar has become less optimistic following yesterday's release of the minutes from the country's central bank meeting on June 4. Although Bank of Canada officials expressed concerns about an inflation spike, they acknowledged the possibility of further monetary policy easing in the event of negative economic data. Benjamin Reitzes of Bank of Montreal believes another rate cut in July is possible, especially if May and June inflation figures come in better than expected.

The RSI and Stochastic technical indicators on the daily USDCAD chart have turned upward from the oversold zone, confirming a buy signal. The nearest target for the upward move could be the 1.375 level.

Consider the following trading strategy:

Buy USDCAD at the current price. Take profit – 1.375. Stop loss – 1.355.