USD/CAD Forecast: Loonie under pressure amid October rate cut bets

• Canada’s GDP rose 0.2% in July, compared with estimates of 0.1%.

• The US PCE core price index came in lower than expected.

• Traders are pricing in a 50% chance of a massive BoC cut in October.

The USD/CAD forecast shows continued weakness in the Canadian dollar due to the prospect of a significant rate cut by the Bank of Canada in October. Meanwhile, the dollar was also fragile after PCE data revealed an unexpected drop in price pressures.

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The Canadian dollar fluctuated on Friday after domestic data showed better-than-expected economic growth. Canada’s GDP rose 0.2% in July, compared with estimates of 0.1%. However, the coin soon reversed as market participants digested the estimates. According to the report, the economy could stall in August. As a result, traders are pricing in a 50% chance of a massive BoC cut in October.

Meanwhile, the US dollar lost ground on Friday after the core PCE price index came in lower than expected. Notably, US inflation rose 0.1%, missing forecasts for a 0.2% rise. At the same time, the annual figure fell to 2.2%, nearing the Fed’s 2% target.

Inflation is steadily falling and will likely reach the Fed’s target soon. As a result, policy makers are confident that they have won the battle. Therefore, the Fed will not hesitate to cut interest rates. Moreover, market participants are pricing in another 50 bps reduction in November. Such significant cuts will put the Fed on par with other central banks that started easing earlier, such as the Bank of Canada.

In addition, it will give these central banks the confidence to increase the size of their interest rate cuts. More interest rate cuts in the US will hurt the dollar. However, as the BoC also cuts borrowing costs, the pair could strengthen.

Key USD/CAD Events Today

USD/CAD Technical Forecast: Bulls charge above 1.3500 level

Technically, the USD/CAD price has recovered beyond the 30-SMA. The break above the SMA indicates a change in sentiment. At the same time, the RSI has crossed the 50 mark and is now trading in bullish territory.

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Bulls made a solid candle that broke above the 1.3500 resistance and the 0.382 Fib level. If this trend continues, USD/CAD will soon reach the 0.618 Fib retracement level. However, the price needs to start making bigger highs and lows to confirm a new bullish trend.

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