• Canada released data showing a drop in retail sales in February.

• There is more pressure on the Bank of Canada than on the Fed to cut interest rates.

• A rebound in oil prices supported the Canadian dollar.

The USD/CAD forecast points downward as the Canadian dollar rebounds following a dip triggered by disappointing economic data. Notably, the rebound came from a recovery in oil prices as investors weighed the risk of an escalation in Middle East tensions.

On Wednesday, Canada released data showing a drop in retail sales in February. Sales fell by 0.1% compared to an expected increase of 0.1%. As a result, markets raised bets that the Bank of Canada will cut rates in June. This led to a significant decline in the Canadian dollar, allowing the USD/CAD pair to rise. However, the pair is now falling after the initial reaction to the news.

The policy and economic outlook divergence between Canada and the US continues to grow. Unlike Canada, the US’s last retail sales report beat forecasts to show a strong economy with robust consumer spending. Meanwhile, consumer spending has declined in Canada, and the economy is weaker.

At the same time, inflation in the US has stalled its decline, while that in Canada continues to ease. Consequently, there is more pressure on the Bank of Canada than the Fed to cut interest rates. Investors believe the BoC will cut rates in June or July. Meanwhile, the Fed might implement the first rate cut in September.

Elsewhere, a rebound in oil prices supported the Canadian dollar on Thursday. Oil recovered after a big drop in the previous session caused by US demand concerns. Although Middle East tensions have eased, the risk of an escalation remains and will likely keep oil prices high.

USD/CAD key events today

• US advance GDP q/q
• US unemployment claims
• US pending home sales m/m

USD/CAD technical forecast: Trendline break signals a new downtrend

On the technical side, the USD/CAD price has broken below its bullish trendline, which confirms a bearish reversal. This comes after the bullish move paused at the 1.3840 key resistance level. Bears took over by first breaking below and retesting the 30-SMA. They confirmed a reversal when the price broke below the trendline and the 1.3700 key level.

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At the same time, the RSI now trades below 50 in bearish territory, supporting a downtrend. Bears are now targeting the next barrier at 1.3550.

https://www.forexcrunch.com/blog/2024/04/25/usd-cad-forecast-data-driven-rise-fades-amid-weaker-dollar/