USD/CAD Price Analysis: Hits 5-Week Top Amid Risk

• The Canadian dollar rose as risk sentiment improved.

• Economists expect inflation in Canada to fall from 2.7% to 2.5% in July.

• Traders will focus on Powell’s speech later this week for guidance on the Fed’s policy outlook.

USD/CAD price analysis tilts south as the Canadian dollar trades near a five-week high amid improving risk sentiment. At the same time, investors await Canada’s inflation report, which could shape the outlook for a BoC interest rate cut.

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The Canadian dollar rose on Tuesday, hitting fresh highs as risk sentiment improved. Loonie gained with US stocks on optimism about the US economy. Last week, data dismissed fears that the US economy was on the brink of a recession. At the same time, expectations of a Fed rate cut improved the outlook for the economy, supporting Wall Street and the Canadian dollar.

Meanwhile, investors are eagerly awaiting Canada’s inflation report for more clues on the prospects for a rate cut by the Bank of Canada. Economists expect inflation to fall from 2.7% to 2.5% in July. The Bank of Canada has already implemented two interest rate cuts. If inflation continues to cool, the central bank could cut again in September.

On the other hand, the US dollar was weak as markets increasingly bet on a Fed rate cut in September. Last week’s inflation numbers met expectations, showing a gradual decline in the Fed’s 2 percent target. As such, policymakers may be ready to signal a rate cut in September.

Traders will focus on Powell’s speech later this week for guidance on the Fed’s policy outlook. In addition, the minutes of the FOMC meeting will show policymakers’ stance on rate cuts and inflation.

Key USD/CAD Events Today

• Canada CPI m/l
• Canadian median CPI y/y
• Canada reduced CPI y/y

USD/CAD Price Technical Analysis: Strong Bearish Momentum Heading to 1.3601 Support

Technically, the USD/CAD price turned sharply lower after retesting the 30-SMA and dropped below the 1.3700 support level. The 30-SMA is well above the price and pointing down, indicating a steep downtrend. Meanwhile, the RSI dipped below 30 in the oversold region.

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Given the solid bearish trend, the decline could soon challenge the 1.3601 support level. If the level holds firm, price will pull back to retest the 30-SMA or its bearish trend line. On the other hand, if the level breaks, USD/CAD will make new lows, continuing the downtrend.

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