• Governor Tiff Macklem dimmed expectations that the central bank would soon start cutting rates.
• The likelihood of a BoC rate cut in April fell to 23% from 43%.
• Oil prices have been on the rise recently due to supply worries.

The USD/CAD forecast took a bearish turn after the Bank of Canada dashed hopes for an imminent rate cut. Moreover, the Canadian dollar strengthened, fueled by the surge in oil prices amidst concerns over supply shortages, adding to the currency’s decline.

On Wednesday, the Bank of Canada held rates at 5%, in line with market expectations. However, Governor Tiff Macklem dimmed expectations that the central bank would soon start cutting rates, stating that inflation was still above the central bank’s 2% target. Therefore, policymakers want to see more progress. Consequently, investors scaled back expectations for rate cuts in Canada, boosting the Canadian dollar. Notably, the likelihood of a cut in April fell to 23% from 43% before the meeting. Moreover, traders are now fully pricing in the first rate cut in July from June.

The pair also fell due to an increase in oil prices. Oil prices have been on the rise recently due to supply worries. Houthi militants continued attacking vessels in the Red Sea, further disrupting supply. Meanwhile, OPEC+ extended output cuts into the second quarter to support oil prices.

Elsewhere, the dollar weakened after Powell confirmed that the Fed would cut rates in 2024. Market participants viewed his testimony as slightly dovish, boosting hopes for rate cuts. The Fed Chair will continue his testimony today and might give more clues on the outlook for rate cuts in the US.

USD/CAD key events today

• US unemployment claims
• Fed Chair Powell’s testimony

USD/CAD technical forecast: Price tumbles as 1.3600 resistance holds firm

On the technical side, USD/CAD has fallen sharply after failing to breach the 1.3600 resistance barrier. The sharp decline has paused at the 1.3500 key support level. Notably, sentiment has shifted to bearish as the price has broken below the 30-SMA.

However, the price still trades in a bullish channel on a larger scale. Therefore, it is still making higher highs and lows. Although bearish momentum is strong, with the RSI nearly oversold, the price trades near channel support. Therefore, bulls might be waiting to retake control and revisit the channel resistance.

https://www.forexcrunch.com/blog/2024/03/07/usd-cad-forecast-boc-deals-a-blow-to-rate-cut-expectations/