• The Bank of Canada will likely remain aggressively dovish.

• Rising oil prices supported the loonie.

• The economy expanded by 2.8% in the third quarter.

The USD/CAD forecast points to further weakness for the Canadian dollar amid an aggressively dovish Bank of Canada. Meanwhile, the dollar eased slightly after data showed weaker-than-expected US economic growth.

The Bank of Canada will likely remain aggressively dovish after the governor projected more rate cuts. Canada’s central bank lowered borrowing costs by 50-bps at the last meeting amid pressure to revive economic growth. Tiff Macklem noted on Wednesday that there would be more to come if the economy performs as expected. Aggressive rate cuts will keep downward pressure on the Canadian dollar, allowing USD/CAD to climb.

However, rising oil prices supported the loonie. Oil rose in the previous session due to a bigger-than-expected drop in US crude inventories, which pointed to solid demand. At the same time, the likelihood of a delay in the planned OPEC+ output increase helped boost prices.

Meanwhile, the US dollar remained fragile after mixed data in the previous session. Notably, the ADP employment report revealed an addition of 233,000 private jobs in October. Economists had expected a smaller addition of 110,000 jobs.

However, a separate report showed the economy expanding by 2.8% in the third quarter, smaller than the forecast of 3.0%. Weak economic demand supported expectations for a Fed rate cut in November.

The next major reports include the core PCE and the nonfarm payrolls report. The PCE report will show the state of inflation, influencing the outlook for future Fed policy moves. Meanwhile, the NFP report will likely show slower job growth from the previous month, solidifying bets for a November rate cut. Meanwhile, Canada will release its GDP report.

USD/CAD key events today

• Canada GDP m/m
• US core PCE price index m/m
• US Employment Cost Index q/q
• US unemployment claims

USD/CAD technical forecast: Fading momentum

On the technical side, the USD/CAD price is climbing higher, above the 30 SMA, indicating a bullish bias. Bulls have set their sights on the 1.3950 key level. However, momentum has fallen since the price made a high near the 1.3825 resistance level. The RSI has made a bearish divergence, which is a reversal signal.

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If bulls regain momentum, the uptrend will continue. Otherwise, the price might drop below the 30-SMA to retest the 1.3825 level.

https://www.forexcrunch.com/blog/2024/10/31/usd-cad-forecast-further-weakness-for-loonie-amid-data/