USD/CAD Price Analysis: CAD Vulnerable After Low CPI

• Inflation in Canada fell 0.2% on the month, surprising economists who had forecast no change.

• The data showed that US retail sales unexpectedly rose 0.1%.

• The probability of a 50 bps Fed rate cut remains high at 63%.

USD/CAD price analysis shows mild bullish momentum as the Canadian dollar remains fragile following weaker than expected inflation data. At the same time, the dollar was steady as sales data pointed to a gradual start to the Fed’s rate cut.

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Data on Tuesday showed inflation fell 0.2 percent on the month, surprising economists who had forecast no change. Inflation in Canada has steadily declined, reaching the Bank of Canada’s target. As a result, experts believe the central bank could increase the size of future interest rate cuts. Consequently, the Canadian dollar could come under pressure, allowing USD/CAD to rise.

However, upside potential for the dollar is also low as the Fed prepares to start reducing borrowing costs. The dollar rose on Tuesday after data showed U.S. retail sales unexpectedly rose 0.1 percent. Economists had expected sales to fall 0.2 percent. The upbeat report briefly boosted the dollar, supporting the case for a small Fed rate cut on Wednesday. However, the probability of a 50 bps cut remains higher at 63%. Market expectations shifted towards the end of last week when news outlets indicated a high probability of a massive Fed rate cut.

In addition, market participants will focus on messages for future moves during the policy meeting. A dovish outlook could weigh on the dollar. On the other hand, a small interest rate cut and a cautious outlook for the future could boost the greenback.

Key USD/CAD Events Today

• Federal funds rate
• FOMC Economic Projections
• FOMC statement
• FOMC press conference

USD/CAD Price Technical Analysis: Bulls Attempt Consolidation Breakout

Technically, the USD/CAD price remained in its tight range, slightly below the critical 1.3600 level. Although the bulls are in the lead, they are not determined to push the price much above the SMA. This is a sign of indecision or a pause due to exhaustion.

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The price is slightly above the SMA with RSI above 50. Therefore, the indicators are bullish. An increase in momentum could push USD/CAD above the 1.3600 resistance level. A break above this level would clear the way for the price to retest the 1.3701 resistance level.

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