In June, the Canadian Dollar strengthened above $1.3340 per dollar, hitting its highest level in two months. This was a consequence of the decision of the Bank of Canada, which provoked a surprise in the market by raising the key interest rate by 25 basis points to 4.75%. Thus, the central bank has resumed the tightening cycle, interrupted by two previous meetings in which the central bank suspended its interest rate tightening campaign. The decision is contrary to earlier signals from the Bank of Canada that rates are peaking and indicates that the cost of borrowing in the Canadian economy has not been as restrictive as economists had expected.
USD/CAD Weekly Forecast June 12 — 16, 2023
Despite the increase in interest rates, the Bank of Canada maintains its forecast that headline inflation will slow to 3% by summer. The latest data show that the consumer price index in Canada rose by 4.4% in April, well above market forecasts of 4.1% and the previous 4.3% in March. The fall in oil prices also supported the activity of buyers in Canada.
The cost of borrowing in Canada is currently at its highest level in 22 years. The Bank of Canada believes that monetary policy has not been restrictive enough to balance supply and demand and sustain inflation back to the 2% target. There were fears that inflation could well exceed the 2% target. Core inflation readings of 3.5-4% for several months are also worrisome. The Bank of Canada will continue to assess the dynamics of core inflation and inflation prospects based on the consumer price index. He remains resolute in his quest to restore price stability for Canadians and bring inflation down to target levels.
Currency pair Canadian Dollar to US Dollar USD/CAD completes the trading week near the level of 1.3332. The pair continues to move as part of a strong fall and the formation of the “Triangle” pattern. Moving averages indicate a bullish trend. Prices have broken through the area between the signal lines, which indicates pressure from sellers of the currency pair and a potential continuation of the fall in the near future. At the moment, we should expect an attempt to develop a slight correction and a test of the support level near the area of 1.3265. Then, a rebound upwards and the continuation of the rise in quotes with a target above the level of 1.4045.
An additional signal in favor of the rise of the USD/CAD currency pair will be a test of the rising trend line on the relative strength index (RSI). The second signal will be a rebound from the lower border of the Triangle pattern. Cancellation of the option to raise the quotes of the USD/CAD currency pair in the current trading week of June 12 — 16, 202 will be a fall and a breakdown of the area of 1.3145. This will indicate a breakdown of support and a continuation of the fall to the area below the level of 1.2845. The rise in the pair will be confirmed by the breakdown of the resistance area and the closing of the price above the level of 1.3965, which will indicate the breakdown of the upper border of the Triangle model and the start of the model with targets at the top.
USD/CAD Weekly Forecast June 12 — 16, 2023 suggests an attempt to develop a downward correction and test the support area near the level of 1.3265. Further, continued growth with the target above the level of 1.4045. An additional signal in favor of the rise will be a test of the long-term bullish trend line on the relative strength index (RSI). Cancellation of the growth development option will be a fall and a breakdown of the 1.3145 area. This will indicate a breakdown of important support and a continued decline in the rise with a target below 1.2845.
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