• The Canadian dollar rallied as risk sentiment improved.

• Economists expect Canada’s inflation to ease from 2.7% to 2.5% in July.

• Traders will focus on Powell’s speech at the end of the week for guidance on the Fed’s policy outlook.

The USD/CAD price analysis leans South as the Canadian dollar trades near a five-week high amid improved risk sentiment. At the same time, investors are awaiting Canada’s inflation report, which could shape the outlook for BoC rate cuts.

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The Canadian dollar rallied on Tuesday, making new highs as risk sentiment improved. The loonie gained with US equities due to optimism about the US economy. Last week, data dismissed fears that the US economy was on the verge of a recession. At the same time, Fed rate cut expectations improved the outlook for the economy, supporting Wall Street and the Canadian dollar.

Meanwhile, investors eagerly await Canada’s inflation report for more clues on the Bank of Canada’s rate cut outlook. Economists expect inflation to ease from 2.7% to 2.5% in July. The Bank of Canada has already implemented two rate cuts. If inflation continues cooling, the central bank might cut again in September.

On the other hand, the US dollar was weak as markets increasingly bet on a Fed rate cut in September. Inflation figures last week met expectations, showing a gradual decline to the Fed’s 2% target. As such, policymakers might be ready to signal a rate cut in September.

Traders will focus on Powell’s speech at the end of the week for guidance on the Fed’s policy outlook. Additionally, the FOMC meeting minutes will show policymakers’ stance on rate cuts and inflation.

USD/CAD key events today

• Canada CPI m/m
• Canada median CPI y/y
• Canada trimmed CPI y/y

USD/CAD technical price analysis: Strong bearish momentum heads for 1.3601 support

On the technical side, the USD/CAD price has fallen sharply after retesting the 30-SMA and breaking below the 1.3700 support level. The 30-SMA sits well above the price and points down, indicating a steep downtrend. Meanwhile, the RSI has fallen below 30 into the oversold region.

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Given the solid bearish bias, the decline might soon challenge the 1.3601 support level. If the level holds firm, the price will pull back to retest the 30-SMA or its bearish trendline. On the other hand, if the level gives way, USD/CAD will make new lows, continuing the downtrend.

https://www.forexcrunch.com/blog/2024/08/20/usd-cad-price-analysis-hits-5-week-top-amid-risk-on/