- The USD/CAD forecast indicates a slight recovery of the dollar against the Canadian dollar.
- Market participants are eagerly awaiting the US monthly employment figures.
- Data revealed that Canada’s economy unexpectedly contracted.
The USD/CAD forecast indicates that the dollar is expected to recover slightly against the Canadian dollar ahead of crucial employment figures from the US and Canada. Meanwhile, data released on Friday revealed unexpected weakness in Canada’s economy, which could pressure the Bank of Canada to cut interest rates.
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Market participants are eagerly awaiting the monthly employment figures from Canada and the US. Notably, the US nonfarm payrolls report will shape the outlook for Fed rate cuts. Another downbeat report could revive bets for a massive rate cut in September.
“Severe weakness (in economic data) would point to an even more forceful Fed response than market pricing predicts, but if May/June weakness is revealed as a statistical mirage, rate cuts would seem unwarranted given the almost certain prospect of rising inflation over the next year or so,” Societe Generale economist Klaus Baader said.
On the other hand, if the labor market is stable, rate cut expectations will ease. Currently, traders are pricing a 90% chance of the Fed cutting interest rates this month.
Meanwhile, the loonie weakened last week after data revealed that Canada’s economy unexpectedly contracted. This put pressure on BoC policymakers to consider resuming rate cuts.
USD/CAD key events today
Market participants are not expecting any high-impact releases from the US or Canada at the start of the week.
USD/CAD technical forecast: Downtrend pauses at the 1.3725 support
On the technical side, the USD/CAD price has paused its decline near the 1.3725 key support level. Nevertheless, the price still trades well below the 30-SMA, a sign that bears have a strong lead. At the same time, the RSI trades below 50, supporting solid bearish momentum.
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The trend turned bearish after an engulfing candle pushed the price below the 30-day SMA. Bulls then retested the SMA but failed to break above it, confirming a new direction. The price has made a steep decline from the SMA without any pauses or pullbacks. But after such a strong move, bears might be exhausted. This could allow USD/CAD to retest the 30-day SMA before the decline continues.
A break below the 1.3725 support will solidify the bearish bias and continue the downtrend. This would enable USD/CAD to retest the 1.3600 support.
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