USD/CAD Forecast: Loonie rises on improved risk appetite

• The People’s Bank of China has announced plans to cut lending costs by 50 basis points.

• The Governor of the Bank of Canada, Tiff Macklem, gave a smooth speech.

• The dollar fell after data showed weaker-than-expected consumer confidence.

The USD/CAD forecast shows a new low for the pair this year after the loonie rallied on improved risk sentiment. On Tuesday, China announced a stimulus package to support the economy, boosting commodity currencies such as the Canadian dollar.

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The People’s Bank of China announced plans to cut borrowing costs by 50 basis points, among other measures to support the economy. China is a major consumer of most major commodities, including oil. Meanwhile, Canada is a net exporter of oil and benefits from higher global demand. As a result, the price of oil rose along with the Canadian dollar.

Further, oil gained on supply concerns due to tensions in the Middle East and the threat of a hurricane in the US.

Elsewhere, Bank of Canada Governor Tiff Macklem gave a dovish speech, raising bets for BoC rate cuts. He noted that the central bank has made a lot of progress in reducing inflation. Notably, Canadian inflation hit the 2% target in August. Therefore, market participants should expect more rate cuts in the future.

Meanwhile, the dollar fell after data showed weaker-than-expected consumer confidence. CB’s consumer confidence number fell sharply from 105.6 in August to 98.7. Moreover, it revealed that people were finding it harder to get jobs. Labor market concerns weighed on the greenback as it could mean a more accommodative Fed.

After last week’s massive rate cut, market participants are waiting for more data for clues on the next move. The main economic indicator is core PCE due on Friday.

Key USD/CAD Events Today

There will be no high impact events in the US or Canada. Therefore, the pair could extend yesterday’s move.

USD/CAD Technical Forecast: Channel breakout triggers sharp decline

From a technical point of view, the USD/CAD price fell sharply after breaking out of the bullish channel. The decline broke several key support levels, including 1.3450. Moreover, the price has fallen well below the 30-SMA, with the RSI dropping into the oversold region.

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Bears are in charge and excited to push prices lower. However, USD/CAD could return to retest the recent 1.3450 level before continuing lower. The next major obstacle for the downtrend is at the 1.3400 level.

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