• Investors eagerly await Canada’s inflation report on Tuesday.

• For April, economists expect Canada’s inflation to drop to 2.8%.

• Fed policymakers have remained cautious despite a drop in inflation.

The USD/CAD outlook paints a bearish picture, with the Canadian dollar in a strong position ahead of Canada’s inflation figures. At the same time, investors are still digesting the US inflation report, which showed a drop in inflation in April.

Investors eagerly await Canada’s inflation report on Tuesday, which will give insight into the Bank of Canada’s rate cut outlook. The last report showed an annual inflation rate of 2.9%, giving policymakers confidence that it will reach the central bank’s target. For April, economists expect the figure to drop to 2.8%.

Lower inflation in Canada would solidify bets that the BoC will start cutting interest rates in June. This is well before the Fed, which might implement the first cut in September. This outlook has contributed to the decline in the currency this year. Notably, the Canadian dollar has lost 2.7% of its value against the dollar since the year began.

However, BoC policymakers are not threatened by the fact that divergence with the Fed might weaken their currency. According to BoC Governor Tiff Macklem, it would take a lot to weaken the loonie to a point where it would increase inflation in Canada.

Meanwhile, Fed policymakers still hesitate to settle on a time for the first cut. Although there is a consensus that the next move will be a cut, there is still caution despite last week’s downbeat consumer inflation report.

USD/CAD key events today

No key economic reports are coming from the US or Canada today. Therefore, investors will likely keep speculating ahead of Canada’s inflation report.

USD/CAD technical outlook: Challenging tough support at 1.3600.

On the technical side, the USD/CAD price has paused at the 1.3600 support level. Moreover, the bias is bearish as the pause is below the 30-SMA resistance line, and the RSI is in bearish territory below 50. The price recently broke below 1.3650, a strong support level. It now trades with the nearest support at 1.3600 and the nearest resistance at 1.3650.

The recent pause at 1.3600 shows that bulls might take charge. If this happens, the price might consolidate in the 1.3600-1.3650 range before continuing the downtrend. It could also make a deeper pullback to retest the resistance trendline before making new lows.

https://www.forexcrunch.com/blog/2024/05/20/usd-cad-outlook-loonie-holds-firm-as-inflation-data-looms/