- The BoC lowered borrowing costs by 25-bps as expected.
- Canada’s central bank downgraded its economic forecasts.
- The Federal Reserve kept rates unchanged as expected.
The USD/CAD forecast shows a divergence in policy and economic outlooks between the Bank of Canada and the Fed due to Trump’s policies. BoC policymakers are worried Trump’s tariffs will weaken the economy, leading to more rate cuts. On the other hand, Fed officials remained silent about rate cuts as Trump’s policies could boost the economy, forcing them to pause.
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On Wednesday, the BoC lowered borrowing costs by 25-bps as expected. At the same time, policymakers noted that a tariff on Canadian goods to the US would significantly hurt the economy. As a result, the central bank downgraded its economic forecasts. Such a dim outlook for the economy puts pressure on officials to keep cutting interest rates to balance the effects of Trump’s policies.
Meanwhile, the Federal Reserve kept rates unchanged as expected, maintaining a cautious tone. Market participants had waited to hear more about future rate cuts. However, Powell gave little guidance on future moves. Moreover, he pointed to the uncertainty surrounding Trump’s policy changes.
Experts believe tariffs will boost the US economy. Therefore, the Fed will likely keep rates elevated, a divergence from the BoC’s outlook. High rates in the US and low borrowing costs in Canada will create a wide gap that will boost the USD/CAD pair.
USD/CAD key events today
- US advance GDP q/q
- US unemployment claims
USD/CAD technical forecast: Bulls struggle to end consolidation
On the technical side, the USD/CAD price has pulled back after another failed attempt to break above its range resistance. However, the bullish bias within the range remains strong since the price trades above the 30-SMA. At the same time, the RSI trades above 50 in bullish territory.
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Therefore, if USD/CAD does not break below the SMA, bulls might make another attempt to break the 1.4450 resistance level. On the other hand, if the range resistance remains firm, bears will take the lead by breaking below the SMA to revisit the range support.
USD/CAD has maintained a holding pattern long after the previous bullish trend. Bulls are making more attempts to break out of this range than bears. If they succeed, the bullish trend will continue past the 1.4551 level. If they fail, the trend will likely reverse to the downside.
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