• Sales in Canada rose by 0.4% compared to a 0.5% forecast.

• The US economy is doing much better than most economists forecast.

• Traders are awaiting the crucial US presidential election.

The USD/CAD outlook shows an economic divergence between Canada and the US, which has propelled the pair higher. At the same time, the Bank of Canada has become more aggressive in lowering borrowing costs. On the other hand, markets are expecting the Fed to assume a more gradual pace for rate cuts.

The Canadian dollar fell on Friday after domestic data showed weaker-than-expected retail sales. Sales rose by 0.4% compared to forecasts of a 0.5% increase. Meanwhile, core retail sales plunged by 0.7% compared to estimates for a 0.3% drop. Canada’s economy has continued to deteriorate, pushing the Bank of Canada to cut rates by a massive 50-bps.

On the other hand, the US economy is doing much better than most economists forecast. Sales rose more than expected in September, and the labor market has remained tight. As a result, markets are pricing a gradual pace for rate cuts by the Federal Reserve.

The shift to more aggressive rate cuts in Canada last week has created a slight policy divergence between the BoC and the Fed. As a result, the outlook for USD/CAD remains bright. An aggressive rate-cutting cycle will weaken the loonie, while a gradual one will eventually boost the dollar.

Meanwhile, traders are awaiting the crucial US presidential election next week. The outcome could affect both fiscal and monetary policy in the US. Consequently, the greenback might rally or collapse. Additionally, market participants will watch US GDP and monthly employment figures for more clues on the upcoming FOMC meeting.

USD/CAD key events today

• BOC Gov Macklem Speaks

USD/CAD technical outlook: Weaker momentum

On the technical side, the USD/CAD price has continued its uptrend despite weaker bullish momentum. The price recently broke above the 1.3825 resistance and rallied to the 1.3901 key level. However, the indicators and price action show weakness in the uptrend.

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The price is sticking close to the 30-SMA, a sign that bulls have lost enthusiasm to make large swings. Meanwhile, the RSI has made a bearish divergence, indicating fading bullish momentum. Finally, bears are stronger and have prompted several pullbacks to the 30-SMA. Therefore, the trend might soon reverse with a break below the SMA.

https://www.forexcrunch.com/blog/2024/10/28/usd-cad-outlook-soars-above-1-39-amid-economic-divergence/