The USD/CAD outlook shows relief for the Canadian dollar after the Bank of Canada paused after seven rate cuts. Meanwhile, the US dollar recovered after retail sales data revealed solid demand. However, tariff uncertainty kept a lid on gains.
The Bank of Canada kept interest rates unchanged on Wednesday, pausing an aggressive policy easing cycle. The central bank has been among the most aggressive in lowering borrowing costs. Canada’s economy is quite sensitive to high interest rates. As a result, it was among the first to start deteriorating, pushing the BoC to ease monetary policy.
Therefore, the pause is a sign that the economy has stabilized. Nevertheless, market participants are pricing a 50% chance that the central bank will cut rates again in June. Moreover, data on Tuesday revealed a sharp inflation decline that might motivate policymakers to continue the easing campaign. Still, they noted that Trump’s tariffs had made it difficult to forecast growth and inflation.
Elsewhere, the greenback paused its decline after US retail sales rose by 1.4%, above estimates. The upbeat figures indicated robust consumer spending and demand. Therefore, it eased pressure on the Fed to lower borrowing costs. Powell said the central bank was in no hurry to cut interest rates.
On the technical side, the USD/CAD price remains in a tight consolidation between the 30-SMA and the 1.618 Fib extension level. Still, the bias is bearish since the price trades below the SMA with the RSI under 50.
Bears recently made a sharp move, breaking below the 1.4050 support to make a lower low. However, the decline paused when the price met a solid support zone comprising the 1.618 Fib extension and the 1.3800 support level. While the price paused here, the RSI made a bullish divergence, indicating weaker bearish momentum.
The price will soon break above the 30-SMA if the divergence plays out, allowing USD/CAD to retest the 1.4050 resistance level. Meanwhile, if bears regain momentum, the price will break below the support zone to make fresh lows.
Source: Forex Crunch / Digpu NewsTex