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USD/CAD Outlook: US Dollar Rises as Rate Cut Bets Fade

  • Several policymakers gave reasons why there was no hurry to lower interest rates.
  • Oil prices rose due to signs that Middle East tensions will likely continue.
  • Canada’s economy recorded a surprise deficit in January as exports fell and imports rose.

Thursday’s USD/CAD outlook was slightly bullish as the US dollar strengthened after policymakers continued to push back on rate cut expectations. Fed policymakers have recently said they would prefer to hold off on rate cuts until there is confidence that inflation will reach the 2% target.

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On Wednesday, several policymakers gave reasons why there was no hurry to lower interest rates. Moreover, the US economy’s resilience has shown that there is still a need for high interest rates. 

Meanwhile, the Canadian dollar was also steady, holding near recent highs due to a rise in oil prices. Oil prices rose due to signs that Middle East tensions will likely continue. Notably, Israel turned down Hama’s appeal to end the war. The Canadian dollar will keep strengthening as long as oil prices keep rising.

Elsewhere, data on Wednesday revealed that Canada’s economy recorded a surprise deficit in January as exports fell and imports rose. This was the first monthly deficit since July. 

Meanwhile, Bank of Canada policy meeting minutes published on Wednesday showed that policymakers were concerned that inflation remained persistent. Therefore, the bank will likely hold off on cutting interest rates. Moreover, the BoC is worried about shelter inflation. If Canada’s housing market recovers more than expected in 2024, it might keep overall inflation high.

USD/CAD key events today

  • US initial jobless claims.

USD/CAD technical outlook: Decline takes a breather at 0.5 fib retracement

USD/CAD technical outlook
USD/CAD 4-hour chart

On the charts, the USD/CAD price has fallen below the 30-SMA, showing a possible shift in sentiment to bearish. At the same time, the RSI is now trading in bearish territory below 50. However, the decline has paused at the 0.5 Fib retracement level, a key support and resistance level.

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Consequently, bulls have emerged at this level and might push the price back above the SMA. If this happens, the price will likely climb to retest the 1.3525 resistance level. A break above this level would make a higher high and start a bullish trend. On the other hand, if the price breaks below the fib level, it will likely continue falling to the 1.3375 support level.

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