USD/CAD Price Analysis: Sees downside further towards 1.3400

• USD/CAD faces pressure as China’s big-bang stimulus strengthens the oil-linked Canadian Dollar.
• The BoC is expected to loosen its interest rate policy further.
• Market participants expect the US core PCE inflation to have accelerated to 2.7% in August.

The USD/CAD pair trades close to a fresh six-month low near 1.3430 in Wednesday’s European session. The Loonie asset remains under pressure as the Canadian Dollar (CAD) performs strongly on China’s massive stimulus announcement, which has strengthened the Oil price outlook.

It is worth noting that Canada is the leading exporter of Oil to the United States (US) and higher Oil prices result in an acceleration in inflows towards the Canadian Dollar. However, its outlook could worsen as the Bank of Canada (BoC) is expected to ease its monetary policy further.

Meanwhile, the US Dollar (USD) strives to gain ground above the yearly low, with the US Dollar Index (DXY) trading above 100.20. The US Dollar rebounds even though investors expect the Federal Reserve (Fed) to reduce interest rates further aggressively.

For fresh interest rate guidance, investors will focus on the US core Personal Consumption Expenditure price index (PCE) data for August, which will be published on Friday. The core PCE inflation is estimated to have grown by 2.7%, higher than 2.6% in July.

USD/CAD prints a fresh swing low near 1.3400 on a daily timeframe, suggesting a firm bearish trend. The Loonie asset weakens after slipping below the August 28 low of 1.3440. A declining 20-day Exponential Moving Average (EMA) near 1.3550 indicates more downside.

The 14-day Relative Strength Index delivers a range shift move into the 20.00-60.00 territory from 40.00-80.00, which suggests that pullbacks would be considered as selling opportunities by investors.

Going forward, a further correction by the major below the immediate support of 1.3400 would expose it to January 31 low of 1.3360 and June 9 low of 1.3340.

In an alternate scenario, a recovery move above the psychological support of 1.3500 would drive the asset towards April 5 low of 1.3540, followed by September 20 high of 1.3590.

USD/CAD daily chart