USD/CAD Price Forecast: Rally pauses near 1.3850 for a while

• USD/CAD falls slightly to near 1.3820 after refreshing an 11-week high.
• The BoC cut its key borrowing rates by 50 bps to 3.75% on Wednesday, as expected.
• The US Dollar holds onto gains as the Fed is expected to cut rates gradually.

The USD/CAD pair corrects slightly to near 1.3820 in Thursday’s European session after posting a fresh 11-week high above 1.3850 on Wednesday. The Loonie pair has shown a one-sided rally since September 25, which appears to have paused for a while as investors look for fresh cues about the likely monetary policy action by the Bank of Canada (BoC) and the Federal Reserve (Fed) in the remaining year.

On Wednesday, the BoC reduced its key borrowing rates by 50 basis points (bps) to 3.75%, as expected. This was the fourth straight interest rate cut by the BoC in a row. The BoC has cut its interest rates by 125 basis points (bps) this year as officials are worried about the continuation of the disinflationary trend due to weak economic growth.

Going forward, the Canadian Dollar (CAD) will be influenced by the monthly Retail Sales data for August, which will be published on Friday. The Retail Sales data, a key measure of consumer spending, is estimated to have grown by 0.5%, slower than 0.9% in July.

Meanwhile, the US Dollar (USD) clings to gains slightly above the August high as investors expect the Fed to follow a gradual policy-easing approach as upbeat Nonfarm Payrolls (NFP), Services PMI, and Retail Sales data for September have diminished risks of a downturn.

USD/CAD witnessed strong buying interest after a breakout above the September 19 high of around 1.3650.

The near-term outlook of the Loonie pair remains firm as the 20- and 50-day Exponential Moving Averages (EMAs) near 1.3725 and 1.36665, respectively, are sloping higher.

The 14-day Relative Strength Index (RSI) oscillates inside the bullish range of 60.00-80.00, pointing to an active momentum.

More upside toward the round-level resistance of 1.3900 and Year-To-Date (YTD) high of 1.3945 would appear if the pair decisively breaks above Wednesday’s high of 1.3863.

In an alternate scenario, a downside move below the September 19 high of around 1.3650 will expose the asset to a May 16 low near 1.3600, followed by a September 30 high of 1.3538.

USD/CAD daily chart

(This story was corrected at 08:00 GMT to say in the last paragraph that a downside move below the September 19 high around 1.3650 will expose the asset to the May 16 low near 1.3600, followed by the September 30 high of 1.3538, not the September 13 high of 1.3538)