USD/CAD Fails to Defend April Low Ahead of Fed Rate Decision

USD/CAD Outlook

USD/CAD registers a fresh weekly low (1.3286) following another downtick in the US Consumer Price Index (CPI), but the exchange rate may attempt to retrace the decline from the start of the month if it defends the February low (1.3263).

USD/CAD Fails to Defend April Low Ahead of Fed Rate Decision

USD/CAD cleared the May low (1.3315) last week as the Bank of Canada (BoC) reestablished its hiking-cycle, and it remains to be seen if the Federal Reserve will alter its approach in managing monetary policy amid signs of easing inflation.

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FOREX.com Economic Calendar

The update to the US CPI showed both the headline and core rate of inflation slowing in May, and the deceleration in consumer prices may push the Federal Open Market Committee (FOMC) to the sidelines as the central bank’s staff warns of ‘a mild recession starting later this year.’

Source: FOMC

As a result, the FOMC may pause its hiking-cycle as the headline CPI narrows for 11 consecutive months, and the update to the Summary of Economic Projections (SEP) may reflect a wait-and-see approach for the coming months should the interest rate dot-plot continue to show a terminal rate of 5.00% to 5.25%.

In turn, more of the same from Chairman Jerome Powell and Co. may keep USD/CAD under pressure as it fuels speculation for a looming change in regime, but another Fed rate hike along with an upward adjustment in the interest rate dot-plot may generate a bullish reaction in the Greenback as the central bank pursues a more restrictive policy.

With that said, developments coming out of the Fed may sway the near-term outlook for USD/CAD as it fails to defend the April low (1.3301), but the exchange rate may continue to move to the beat of its own drum amid the conflicting slopes in the 50-Day (1.3483) and 200-Day (1.3515) SMA.

Canadian Dollar Price Chart – USD/CAD Daily

Chart Prepared by David Song, Strategist; USD/CAD Price on TradingView

• USD/CAD continues to trade to fresh monthly lows after clearing the May low (1.3315), and failure to defend the April low (1.3301) may lead to a test of the February low (1.3263).
• A break/close below the 1.3230 (100% Fibonacci extension) to 1.3310 (50% Fibonacci retracement) region opens the 1.2980 (61.8% Fibonacci retracement) to 1.3030 (78.6% Fibonacci extension) area, but the exchange rate may attempt to retrace the decline from the start of the month if it defends the February low (1.3263).
• Failure to test the February low (1.3263) may push USD/CAD back towards 1.3440 (23.6% Fibonacci retracement), with a move above the 50-Day (1.3483) and 200-Day (1.3515) SMA bringing 1.3630 (38.2% Fibonacci retracement) back on the radar.

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--- Written by David Song, Strategist

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