Fundamentals
Since the beginning of this year, the CADUSD has been depreciating, reaching a nearly two-year high of around 1.3950 in early August. Following a significant appreciation period in August, the Canadian dollar has since started a steady decline, currently hovering around 1.3800 against the U.S. dollar.
The market widely anticipates that the BOC will hold its fourth consecutive interest rate cut meeting on Wednesday. Unlike previous instances, this rate reduction appears to have reached a consensus, with a cut of 50 basis points expected, lowering the benchmark rate to 3.75%. The BOC is intensifying its monetary easing efforts as policymakers grow increasingly concerned that prevailing high interest rates may inflict further pain on the economy. If thee rate cut aligns with expectations, the USDCAD may surpass the 1.4000 level.
Recent economic indicators support the need for more aggressive adjustment measures. The unemployment rate surged to a seven-year high of 6.6% in August (excluding the pandemic period) and slightly decreased to 6.5% in September. Even with the unemployment rate at 6.5%, it remains a full percentage point higher than the same time last year. Moreover, GDP per capita has contracted for five consecutive quarters. With the inflation rate rapidly declining to 1.6% in September, the BOC has room to take rapid action.
The critical issue at hand is the pace of future policy easing. There is a strong expectation among individuals that interest rates will fall to a neutral range between 2.25% and 3.25% by the end of next year. Among the major financial institutions, Scotiabank predicts a more conservative policy rate of 3.00% by year’s end, whereas National Bank and Royal Bank of Canada anticipate a more aggressive increase to 2.00% by the end of 2025. These forecasts may be subject to reassessment based on the new economic projections released by the BOC today.
Technical Analysis
Technically, the recent rebound in the USDCAD, starting from 1.3418, is advancing toward the resistance area at 1.3976. However, it remains uncertain whether the medium-term consolidation phase that commenced at 1.3976 (the high recorded in 2022) has concluded in a triangular formation at 1.3418. As such, a significant resistance level may exist at 1.3976, potentially limiting the upward movement once again.
On the other hand, a breakout beyond 1.3746 would indicate a short-term peak has been reached, leaning towards a downward adjustment and further retracement. Overall, a decisive break above 1.3976 in the USDCAD may necessitate a more pronounced divergence in monetary policy between the Federal Reserve and the BOC.
Trading Recommendations
Trading Direction: Buy
Entry Price: 1.3826
Target Price: 1.4050
Stop Loss: 1.3707
Deadline: November 7, 2024 23:55:00
Support: 1.3783, 1.3744, 1.3725
Resistance: 1.3849, 1.3855, 1.3890
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