USD/CAD Sees Strong Bullish Sentiment

30. Okt. 2023

USD/CAD Sees Strong Bullish Sentiment

The USD/CAD pair continues to exhibit robust bullish sentiment as the new trading week kicks off. After a significant bounce in the 1.3600 region, where key Fibonacci levels were in play, the pair embarked on an impressive bullish rally, and it is currently trading around the 1.38600 area. With the initial target already reached, the focus now shifts to 1.3980.

From a technical standpoint, the pair has been on a strong upward trajectory. The 1.3600 area acted as a significant support level, setting the stage for the recent bullish surge. The ongoing bullish momentum has brought the pair to the 1.38600 level, with the next target firmly set at 1.3980.

Turning our attention to the fundamental aspects driving this currency pair, investors are eagerly awaiting the Federal Reserve (Fed) interest rate decision, which is scheduled for Wednesday. It is widely anticipated that the Fed will keep the interest rate unchanged at the end of its two-day meeting. Despite persistent concerns about inflation, especially with the Core US Personal Consumption Expenditure Index (PCE) remaining above the 2% target, no adjustments are expected at this time.

Following the September meeting, the Fed acknowledged that recent economic data indicated solid economic growth. While job growth has slightly decelerated in recent months, it has remained robust. However, Fed Chair Jerome Powell emphasized that inflation remains uncomfortably high, leading to expectations of a potential rate hike at the December meeting. The prospect of prolonged higher interest rates in the US may serve as a tailwind for the USD/CAD pair.

In recent data releases, the Core US Personal Consumption Expenditure Index (PCE) for September displayed a year-on-year easing, slipping from 3.8% to 3.7%, in line with market projections. Meanwhile, the monthly Core PCE exhibited growth of 0.3%, compared to the 0.1% reading in the previous period. Furthermore, the headline PCE Price Index for September registered at 3.4% year-on-year, matching the expected 3.4%.

The Canadian dollar (Loonie) is also in the spotlight, where declining oil prices may restrict the upside potential of the commodity-linked currency. Canada is a major oil exporter to the US, and changes in oil prices can significantly impact the Loonie. Last week, the Bank of Canada (BoC) chose to maintain the interest rate at 5%. BoC Governor Tiff Macklem explained that this decision was made to provide monetary policy with ample time to cool the economy and alleviate inflationary pressures. The central bank is closely monitoring whether monetary policy is adequately restrictive.

The upcoming economic calendar features the release of the Canadian Gross Domestic Product data for August on Tuesday, as well as the Canadian S&P Global Manufacturing PMI for October and the US ISM Manufacturing PMI, both due on Wednesday. The highlight of the week will undoubtedly be the Fed's policy decision on Wednesday, with Friday offering employment data from both Canada and the US. These key events have the potential to significantly impact market volatility and may chart the course for the USD/CAD pair.



Our preference

Long positions above 1.3832 with targets at 1.3890 & 1.3910 in extension.