- Economists expect the US monthly CPI to increase by 0.2%.
- Trump’s import tariffs will affect Canada’s economy.
- OPEC lowered its forecast for oil demand growth this year and in 2025.
The USD/CAD forecast shows a tight consolidation as traders prepare for the US consumer price index report. Meanwhile, the Canadian dollar remained fragile as oil prices dropped due to China’s demand concerns.
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Economists expect the US monthly CPI to increase by 0.2%, similar to September’s increase. Meanwhile, the annual figure might increase by 2.6%, higher than September’s increase of 2.4%. An unexpected jump will boost the dollar by lowering the chances of a December Fed rate cut. On the other hand, if inflation misses forecasts, the dollar will retreat due to an increase in rate-cut expectations.
Recently, Fed rate cut expectations have dropped as traders expect higher inflation with Trump’s administration. Trump’s policy proposals, such as tax cuts and import tariffs, will boost business in the US and increase demand. Therefore, inflation will shoot up, complicating the outlook for Fed rate cuts.
The Fed has maintained high interest rates to lower inflation to the 2% target. However, if price pressures increase before the central bank achieves its goal, policymakers might vote to hold rates at restrictive levels. Moreover, a continued rise in inflation could prompt the central bank to hike rates. This outlook has boosted the greenback against most major peers, including the Canadian dollar.
Furthermore, import tariffs will affect Canada’s economy since most of its exports end up in the US. Meanwhile, the loonie was weak on Wednesday as oil prices fell on demand concerns. OPEC lowered its forecast for oil demand growth this year and in 2025 due to China’s weak consumption.
USD/CAD key events today
- Core CPI m/m
- CPI m/m
- CPI y/y
USD/CAD technical forecast: Bulls make a third attempt at 1.3951 resistance
On the technical side, the USD/CAD price is testing the 1.3951 resistance level. The price trades above the 30-SMA with the RSI above 50. Therefore, bulls are in the lead. However, they have made several failed attempts to breach the 1.3951 resistance. Moreover, the price has made a bearish engulfing candle that signals a looming reversal.
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If the price fails to breach the resistance, it will fall below the 30-SMA to retest the 1.3825 support level. On the other hand, if bullish momentum surges, the price will make a higher high, continuing the previous bullish trend.
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