USD/CAD Forecast: BoC Interest Rate Decision Takes Spotlight

USD/CAD Outlook

USD/CAD registers a fresh weekly low (1.3390) as it gives back the advance from the start of the week, but the Bank of Canada (BoC) interest rate decision may prop up the exchange rate as the central bank is anticipated to keep the benchmark interest rate on hold.

USD/CAD Forecast: BoC Interest Rate Decision Takes Spotlight

USD/CAD sits around the middle of the May range after showing a limited reaction to the larger-than-expected rise in US Non-Farm Payrolls (NFP), and the exchange rate may continue to move to the beat of its own drum as it appears to be trading within a defined corridor.

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As a result, the BoC meeting may do little to sway the near-term outlook for USD/CAD as the central bank is expected to retain the current policy, and Governor Tiff Macklem and Co. may continue to endorse a wait-and-see approach as the ‘Bank expects CPI inflation to fall quickly to around 3% in the middle of this year and then decline more gradually to the 2% target by the end of 2024.’

However, the BoC may respond to the stickiness in inflation as Canada’s Consumer Price Index (CPI) showed the headline reading rising to 4.4% in April from 4.3% per annum the month prior, and an unexpected rate-hike may spark a bullish reaction in the Canadian Dollar as the board ‘remains prepared to raise the policy rate further if needed to return inflation to the 2% target.

With that said, USD/CAD may struggle to retain the advance from the May low (1.3315) if the BoC implements higher interest rates, but the exchange rate may continue to move to the beat of its own drum amid the conflicting slopes in the 50-Day (1.3498) and 200-Day (1.3510) SMA’s.

Canadian Dollar Price Chart – USD/CAD Daily

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

• USD/CAD sits in the middle of the May range following the failed attempts to test the April high (1.3668), but failure to hold above 1.3440 (23.6% Fibonacci retracement) may lead to test of the May low (1.3315).
• Next area of interest comes in around April low (1.3301), with a break/close below the 1.3230 (100% Fibonacci extension) to 1.3310 (50% Fibonacci retracement) region opening up the 1.2980 (61.8% Fibonacci retracement) to 1.3030 (78.6% Fibonacci extension).
• However, USD/CAD may continue to consolidate within a defined range as the 50-Day (1.3498) and 200-Day (1.3510) SMA’s reflect different slopes, with a move above 1.3440 (23.6% Fibonacci retracement) bringing the 1.3630 (38.2% Fibonacci retracement) area back on the radar.

Additional Market Outlooks

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Gold Price Rebound Brings Test of 50-Day SMA

--- Written by David Song, Strategist

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