The USD/CAD exchange rate rose slightly after the latest Liberal Party election in which Mark Carney won to replace Justin Trudeau. It also rose ahead of the upcoming Bank of Canada (BoC) decision and the US consumer inflation data. It was trading at 1.4380, few points above last week’s low of 1.4340.
Bank of Canada decision
The USD/CAD exchange rate will be in the spotlight this week as the Bank of Canada releases its interest rate decision.
Economists expect the bank to continue with its dovish outlook in this meeting by cutting interest rates by 0.25%. If this happens, the bank will bring its official cash rate to 2.75% from the previous 3.0%.
The BoC has been one of the most dovish central banks in the market in the past few months after cutting rates six times. It has moved them from last year’s high of 5.5% to the current 3%.
These interest rate cuts happened as the Canadian economy slowed down substantially and inflation moved to the 2% target rate. Data released last week showed that the unemployment rate was 6.6%, while the economy added just 1.1k jobs in February.
There is a risk that the Canadian economy will continue to decelerate now that the country has moved into a trade war with the United States. Trump has added a universal tariff on Canadian goods and 10% on energy products.
Trump believes that these tariffs will help to balance the trade with Canada. Experts have noted that, while Canada has a trade surplus with the US, it is mostly because of energy products. Excluding these products, the US has a large trade surplus with Canada
Mark Carney, the former Bank of Canada (BoC) governor and the incoming prime minister, has maintained that he will maintain the tariffs that the country has implemented on US goods until Trump caves.
Read more: USD/CAD forecast: BoC, Fed and the carry trade opportunity
US inflation data ahead
The USD/CAD exchange rate reacted to last Friday’s US jobs numbers. According to the statistics agency, the US economy created 151k jobs in February after adding a downward-revised 125k a month earlier. This job creation was lower than the median estimate of 159k.
The US unemployment rate rose to 4.1%, while the average hourly earnings rose to 4.9%, lower than the median estimate of 4.1%. The ongoing trade war that has affected consumer and business confidence in the US will affect the labor market.
Looking ahead, the next key USD/CAD news to watch will be the upcoming US consumer inflation data. Economists expect the data to show that US inflation dropped from 0.5% in January to 0.3% in February and from 3.0% to 2.9% on a YoY basis.
Core inflation is expected to move from 3.3% to 3.2%. While this will be a good report, there are concerns that inflation will tick up over time because of these tariffs.
USD/CAD technical analysis
USDCAD price chart | Source: TradingView
The USD to CAD exchange rate has been in a strong uptrend in the past few years as the Canadian economy has slowed. It moved from a low of 1.2000 in July 2021 to 1.4400 today.
The USD/CAD pair moved above the 23.6% Fibonacci Retracement level. It has also remained above the 50-week Exponential Moving Average (EMA).
The pair has formed a bullish pennant pattern, a popular continuation sign. Therefore, the path of the least resistance for the pair is bullish, with the next level to watch being at 1.4790, the highest level this year.
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