USD/CAD Weekly Forecast: Fed joins BoC in race to cut rates

• The Fed cut rates by 50 basis points per second, kicking off its easing cycle with a bang.

• Canadian inflation fell more than expected on a monthly basis.

• Canadian retail sales rose, showing solid consumer spending.

USD/CAD weekly forecast shows slow decline as Fed follows Bank of Canada in cutting borrowing costs.

USD/CAD Ups and Downs

The USD/CAD pair ended the week lower as the greenback eased following the FOMC policy meeting. Data before the meeting and economists’ estimates had pointed to a gradual pace of rate cuts. Meanwhile, market participants rated a 65% chance of an aggressive start.

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On Wednesday, the Fed cut interest rates by 50 basis points per second, kicking off its easing cycle with a bang. The dollar fell against most of its peers. However, the decline against the loonie was mild as the BoC may also cut interest rates.

Meanwhile, data from Canada showed a mixed picture. Inflation fell more than expected on a monthly basis. On the other hand, retail sales rose, showing solid consumer spending.

Next week’s key events for USD/CAD

Next week, the US will release data on Gross Domestic Product and durable goods. Meanwhile, Canada will only release GDP data. US GDP data will show the health of the economy, which could influence the Fed’s policy outlook.

A healthy economy could reduce rate cut expectations as the Fed should not be too aggressive. On the other hand, if GDP shows a weak economy, it could raise expectations for a rate cut in November.

Meanwhile, in Canada, the Bank of Canada may increase the size of future rate cuts to reflect the Fed’s recent move. The GDP report will also influence the outlook for future policy moves in Canada.

USD/CAD Weekly Technical Forecast: Price action suggests a bearish reversal

Technically, the USD/CAD price is trading slightly above the 22-SMA, a sign that the bulls are in the lead. However, the price action shows that the bias could change soon. In particular, the RSI is trading below 50, supporting bearish momentum.

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In addition, the price made a bearish engulfing candle after a break at the key resistance level of 1.3600. It also briefly touched the 0.382 Fib retracement level, which also acted as resistance. The bears could take control in the coming week if the price breaks below the 22-SMA. USD/CAD could then decline to the 1.3450 support. A break below this level would signal a continuation of the previous downtrend.

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