Analyze USD/CAD ahead of Bank of Canada decision
- USD/CAD is languishing near the lower end of its weekly range, around mid-1.3350.
- Bets for smaller Fed rate hikes continue to weigh on the US Dollar and concern a headwind.
- The decline appears to be cushioned as traders witness the Bank of Canada’s decision.
the pair USD/CAD is struggling to gain significant traction and languishes near the lower end of its weekly range throughout Wednesday’s Asian session. The upside remains capped amid underlying bearish sentiment in the US Dollar, which continues to be weighed by firming expectations of a less aggressive Fed policy cut.
Markets appear confident that the US central bank will ease its hawkish stance amid signs of easing inflationary pressures and have forecast a 25 basis point lower rate hike in February. This I combined with a positive tone around Asian equity markets, weighing on the safe-haven greenback and acting as a headwind for the major.
That said, the overnight decline in oil price Crude is undermining the commodity-linked loonie and helping to limit USD/CAD shares, at least for now.
The prospect of slowing global economic growth, even as signs of a further rise in major US inventories, overshadowed deserved optimism about an improvement in Chinese fuel demand.
Indeed, the representatives of the American Petroleum Institute (API) indicated a more significant increase than the forecast of 3.4 million barrels of crude oil inventories in the United States for the week of January 20. This, in turn, could limit the rise in crude oil prices and provide forex support to the USD/CAD pair. Traders seem equally reluctant ahead of the Bank of Canada’s monetary policy meeting.
The Canadian central bank is expected to announce its decision later in the first North American session and offer a 25-point base house.
Markets, however, present a slim chance that the Bank of Canada will leave rates unchanged amid looming downside risks. Other than that, more emphasis will be placed on the accompanying monetary policy statement and the post-meeting press conference.
This, in turn, should play a key role in determining the Canadian dollar’s short-term path and provide some momentum for the USD/CAD pair.
As a result, it will be prudent to wait for strong follow-up winds ahead of its position for further short-term depreciation movement for the major.
USD/CAD Technical Outlook
From a technical perspective, the coming week’s check to find acceptance above the 100-day simple moving average suggests that the recent downtrend may still be far from over. That said, bearish traders could wait for a next slide below the monthly low around the 1.3320 area before placing new bets.
This is followed closely by the round figure of 1.3300, below which USD/CAD could slip to levels below 1.3200. The latter coincides with the three important 200-day simple moving averages, which, if broken decisively, will mark a new bearish breakout and pave the way for further short-term downward movement.
On the other hand, any attempt at recovery may continue to attract some sellers near the 1.3400 mark. This, in turn, could cap the USD/CAD pair near the weekly high around the 1.3415-1.3420 area.
Some followers, however, could apply a short-hedging rally and push the buy price higher towards the psychological 1.3500 mark en route to the 100-day simple moving average, currently around the 1.3515-1.3520 region.
This last level should act as a pivot point which, if decisively removed, will negate any negative bias and shift the short-term bias in favor of bullish traders.
By Haresh Menghani, CFA, Financial Markets Analyst at FXStreet
Haresh Menghani, Financial Markets Analyst and New Editor, has joined the FXStreet team after accumulating 8 years of rich experience in analyzing global financial markets. Haresh holds a master’s degree in business administration and financial analysis. I also received the Chartered Financial Analyst (CFA) designation from the Institute of Chartered Financial Analysts India (ICFAI).
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