• The EIA updated its demand growth forecasts to project a more positive outlook.
• A bigger-than-expected drop in US crude oil inventories signaled rising demand.
• Investors are positioning themselves for the US Consumer Price Index report and the Fed meeting.

The USD/CAD forecast is bearish, with the Canadian dollar benefitting from an improved demand outlook for oil. Meanwhile, the US dollar has paused its recent rally as investors await the upcoming consumer inflation report and the Fed meeting.

On Wednesday, the Canadian dollar was on the front foot, with oil climbing as the EIA updated its demand growth forecasts to project a more positive outlook. At the same time, a bigger-than-expected drop in crude oil inventories signaled rising demand.

Meanwhile, the dollar retreated slightly after reaching a four-week peak in the previous session due to reduced Fed rate cut expectations. Last week’s jobs report showed a still-tight labor market that will likely keep the central bank from signaling early rate cuts. As a result, there is only a 56% chance of a cut in September, a significant drop from around 77% a week ago.

Furthermore, the dollar’s retreat comes as investors position themselves for the US Consumer Price Index report and the Fed meeting. If the inflation report confirms that demand remains high in the economy, the dollar will rally with a decline in rate cut expectations. On the other hand, if it shows a slowdown, the greenback will collapse with an increase in rate-cut bets.

Markets will then pay attention to the Fed’s projections for growth and inflation. This will give clues on when the central bank might be ready to start lowering borrowing costs.

USD/CAD key events today

• US Consumer Price Index
• FOMC policy meeting
• FOMC press conference

USD/CAD technical forecast: Bulls pause rally for a temporary retreat

On the technical side, the USD/CAD price has paused its surge near the 1.3780 resistance level and is pulling back to retest the 30-SMA support. This move comes after bulls broke out of a bearish channel and took control, so the bullish bias is strong.

As such, the price will likely soon find support and continue higher. Notably, there is support at the 30-SMA, the 1.3720 level, and the recently broken channel resistance. Consequently, there is a high chance that the price will bounce higher to seek a new high above 1.3780.

https://www.forexcrunch.com/blog/2024/06/12/usd-cad-forecast-loonie-gains-on-upbeat-oil-demand/