- Canada’s economy expanded by 1% in the third quarter.
- Markets raised the chances of another super-sized BoC rate cut from 31% to 50%.
- Market participants are awaiting the US nonfarm payrolls report.
The USD/CAD outlook shows a weak Canadian dollar after data last week raised the likelihood of another massive Bank of Canada rate cut in December. Meanwhile, the dollar was steady as market participants looked forward to key data and Fed policymaker remarks.
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Data on Friday revealed that Canada’s economy expanded by 1% in the third quarter, beating the Bank of Canada’s estimate for a 1.5% increase. At the same time, the figure was a big decline from the second quarter when the economy expanded by 2.2%.
After the data, markets raised the chances of another super-sized rate cut in December from 31% to 50%. Interest rates in Canada have fallen faster than anywhere else because the economy is extremely sensitive to high rates. Consequently, economic growth has slowed down sharply due to high borrowing costs.
At the same time, the economy is facing the threat of a 25% tariff on goods exported to the US. If there is no negotiation between the two countries, Canada’s economy will suffer. At the same time, the Bank of Canada will be under more pressure to spur growth with lower borrowing costs. On the other hand, the US economy has remained fairly resilient in the face of high rates.
Meanwhile, inflation has paused near the Fed’s 2% target. Although traders expect a rate cut in December, they expect a gradual pace in 2025. Trump’s administration will likely boost economic demand and reheat the economy. Elsewhere, market participants are awaiting the US nonfarm payrolls report due on Friday for more clues on the December Fed meeting. Currently bets show a 65% chance of a rate cut.
USD/CAD key events today
USD/CAD technical outlook: Bullish engulfing candle
On the technical side, the USD/CAD price has paused at the 30-SMA resistance after making a strong reversal signal. The price made a bullish engulfing pattern after reaching its bullish trendline. Although USD/CAD has been chopping through the 30-SMA, it has made higher highs and lows, signaling a bullish trend.
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Consequently, there is a high chance this trend will continue with a break above the 30-SMA. Bulls will aim to challenge the 1.4150 resistance level. The trend will only change if the price breaks below the trendline.
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