- The USD/CAD forecast shows the loonie trading near a five-month high.
- Last week, the Canadian dollar gained over 2.4%.
- Market participants are pricing a 60% chance of a BoC pause.
The USD/CAD forecast shows the loonie trading near a five-month high as traders anticipate a Bank of Canada pause. At the same time, a weak dollar supported the CAD. The greenback collapsed last week amid downbeat US inflation data. At the same time, investors lost confidence in the US administration, leading to a sell-off in US assets.
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Last week, the Canadian dollar gained over 2.4% as a drop in the dollar allowed most of its peers to rally. The dollar collapsed after Trump imposed and then paused reciprocal tariffs on many countries. The move caused a lot of uncertainty regarding Trump’s policy plans. As a result, investors lost confidence in the US administration. This caused a steep sell-off in US assets as market participants preferred safer options like gold.
At the same time, the trade war between the US and China escalated, increasing US recession fears. Further downward pressure came from downbeat US inflation data. Consumer inflation dropped by 0.1% compared to expectations for a 0.1% increase. Meanwhile, wholesale inflation fell by 0.4% compared to estimates of a 0.2% increase. The downbeat figures increased expectations for Fed rate cuts.
On the other hand, market participants were pricing a 60% chance that the Bank of Canada would pause on Wednesday. Such an outcome would pause an aggressive easing cycle, boosting the CAD.
USD/CAD key events today
Market participants do not expect any key events today. Therefore, the pair might extend last week’s move.
USD/CAD technical forecast: Downtrend could pause at support zone
On the technical side, the USD/CAD price is entering a solid support zone. The zone comprises the 1.618 Fib extension and the 1.3802 key psychological level. The price reached this level after a steep collapse. The bearish bias is strong because the price trades well below the 30-SMA, with the RSI in the oversold region.
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Bears made a milestone move when the price broke below the 1.4050 support level. It confirmed a continuation of the downtrend. However, after such a sharp decline, bears might pause at the current support zone.
A pause would allow the price to retest the 30-SMA or the 1.4050 resistance level. Nevertheless, since the bearish bias is strong, the downtrend will likely continue with a break below the 1.3802 support level.
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