• Data last week boosted expectations for a massive BoC rate cut.

• Oil has recently dropped due to eating Middle East tensions.

• The greenback recovered on Monday as market participants priced a likely Trump win in November.

The USD/CAD outlook shows a slow climb amid bets for a massive BoC rate cut on Wednesday. At the same time, the dollar rallied as markets increasingly priced a Trump win in November.

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Data last week boosted expectations for a massive BoC rate cut. Notably, Canada’s inflation eased more than expected to 1.6%, increasing pressure on the central bank to lower borrowing costs. At the same time, Canada’s economy has deteriorated due to high interest rates. Currently, markets are pricing a 90% chance that the BoC will cut rates by 50-bps on Wednesday.

Meanwhile, the Loonie barely reacted to news that China was planning funding schemes to support its stock market. Stimulus to support China’s economy is bullish for oil as it improves the demand outlook. However, oil has recently dropped due to eating Middle East tensions. Consequently, CAD has also dropped.

Elsewhere, the greenback recovered on Monday as market participants priced a likely Trump win in November. As the US presidential election looms, traders increasingly expect Trump to win. This is supporting the dollar as Trump’s policies could mean higher inflation. Such an outcome would make it difficult for the Fed to continue cutting interest rates. Moreover, it could lead to a pivot that would boost the dollar.

Furthermore, data from the US has shown a resilient economy, changing Fed rate cut expectations. Markets now expect a gradual easing phase with a 95% chance of a 25-bps cut in November.

USD/CAD key events today

There will be no key events in the US or Canada today, so the pair will likely extend its gains.

USD/CAD technical outlook: Bulls losing steam

On the technical side, the USD/CAD price is retesting the 1.3825 resistance. It trades above the 30-SMA while the RSI trades near the overbought region, supporting a bullish bias. However, there are signs that bulls might be ready to give up control.

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First, the price recently punctured the 30-SMA, showing stronger bearish momentum. At the same time, the RSI is making lower highs, indicating fading bullish momentum. Therefore, if the price fails to break above the 1.3825 resistance, it might reverse to the downside.

https://www.forexcrunch.com/blog/2024/10/21/usd-cad-outlook-loonie-slips-as-rate-cut-bets-build/