• Oil prices fell due to demand concerns after China’s disappointing pledge to improve its weak economy.

• Traders are gearing up for the Bank of Canada’s monetary policy decision.

• There is a 64% chance that the Fed will cut rates starting in June.

The USD/CAD outlook signals optimism as the Canadian dollar weakens amid falling oil prices. Additionally, investors remained cautious ahead of the Bank of Canada monetary policy meeting.

Oil prices fell due to demand concerns after China’s pledge to improve its weak economy failed to impress investors. China is the largest consumer of oil. Therefore, a poor economy hurts oil demand, leading to a decline in prices. Meanwhile, a decline in oil prices hurts the Canadian dollar, as Canada is a net oil exporter.

At the same time, traders are gearing up for the Bank of Canada’s monetary policy decision on Wednesday. Markets expect the central bank to hold rates at 5%. However, they will focus on the statements made at the meeting regarding future policy decisions. Traders will especially be on the lookout for clues on the timing of rate cuts in Canada. The BoC might start cutting rates in April or June.

Meanwhile, investors are also expecting more insights about the timing of rate cuts in the US when Powell testifies before Congress on Wednesday. At the moment, there is a 64% chance that the Fed will cut rates starting in June. Additionally, markets now expect a total reduction of 75bps in interest rates this year. This is in line with Fed forecasts, showing a significant drop in rate-cut expectations.

USD/CAD key events today

• US ISM Services PMI

USD/CAD technical outlook: Bulls hit a wall at the crucial 1.3600 level

On the technical side, USD/CAD is climbing after respecting the 30-SMA support line. The bullish bias is strong, as the price has maintained its position above the SMA and the RSI above 50. Furthermore, the price currently trades in a bullish channel. Therefore, it is making higher highs and lows on a larger scale.

At the moment, the price is approaching the channel resistance. However, bulls have encountered solid resistance at the 1.3600 key level. Still, after finding support at the 30-SMA, the price is rising with renewed strength. Therefore, there is a high chance it will make a new high above 1.3600.

https://www.forexcrunch.com/blog/2024/03/05/usd-cad-outlook-weaker-oil-weighs-on-loonie-eyes-on-boc/