USD/CAD Forecast: Greenback Weakens Post-Dovish Fed Min

• Markets are fully pricing in a September Fed rate cut of 25 basis points after dovish minutes from the FOMC meeting.

• Oil prices fell on Wednesday amid growing concerns about China’s economy.

• Investors have fully priced in another Bank of Canada rate cut in September.

The USD/CAD forecast is tilted to the downside, with the dollar on the back foot after the FOMC meeting minutes. Investors are more confident that the Fed will implement its first rate cut in September. At the same time, Canadian inflation data increased the likelihood of a Bank of Canada rate cut in September.

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Fed minutes released Wednesday showed policymakers are poised to cut borrowing costs in September if the data comes in as expected. It clearly indicated confidence that inflation would reach the 2% target. As inflation met expectations in July, investors are confident that policymakers will vote to cut rates next month. As a result, markets are fully pricing in a 25 bps rate cut.

The focus now shifts to Powell’s speech tomorrow. If it signals a rate cut, the dollar could continue to fall, benefiting the Canadian dollar. The CAD has strengthened significantly this week despite lower oil prices and easing inflation in Canada.

In particular, oil fell on Wednesday amid growing concerns about China’s economy. China’s fragile recovery has clouded the outlook for oil demand, and most experts have cut their forecasts for global demand. However, the loonie gained amid weakness in the US dollar.

Meanwhile, data on Tuesday showed Canada’s July inflation fell to a 40-month low of 2.5 per cent. After the report, investors fully priced in another Bank of Canada rate cut in September. However, investors have already priced in this result. Consequently, the data had little impact.

Key USD/CAD Events Today

• Unemployment claims
• Flash Manufacturing PMI
• PMI Flash Services

USD/CAD Technical Forecast: Price is becoming oversold below 1.3601

Technically, the USD/CAD price is in freefall and recently broke below the 1.3601 support level. Since the bears took control when the uptrend peaked, the price has been trading below the 30-SMA. At the same time, the RSI traded below 50, supporting bearish momentum.

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Right now, the RSI is in the oversold region, indicating extreme bearish momentum. As USD/CAD is oversold, bulls could re-emerge for a pullback to retest the 30-SMA. However, the price could reach the key level of 1.3550 before that happens.

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