**USD/CAD Price Forecast: Expectations of Extended Decline Below 1.3640**
*Original article by Anil Panchal, FXStreet. Expanded and updated with additional analysis and data.*
The USD/CAD currency pair maintains a bearish undertone as we approach the end of the 2023 trading calendar. With the U.S. dollar experiencing widespread pressure amid moderating inflation data and increasing speculation of interest rate cuts by the Federal Reserve in early 2024, the Canadian dollar appears to be gaining traction. A confluence of technical and fundamental signals suggests that the USD/CAD may continue to slide below the key support level of 1.3640, potentially targeting lower levels not seen in recent months. In this article, we break down what traders and investors should watch for when evaluating this major currency pair.
### Overview: USD/CAD Recent Price Activity
Over the final week of December 2023, USD/CAD has continued its downward trajectory, showing signs of extended weakness. The failure of bulls to retest key resistance zones reinforces the idea that the bears remain in control.
– The pair began the last trading week of December near 1.3230 but steadily declined due to softer U.S. data.
– Attempts to recover above the 1.3650 psychological level have been rejected multiple times.
– The prevailing sentiment supports further bearish developments with a likely test of sub-1.3600 levels if selling pressure sustains.
These movements echo broader macroeconomic shifts, particularly growing sentiment that the U.S. Federal Reserve has concluded its rate-hiking cycle while the Bank of Canada (BoC) remains more cautious, guided by domestic inflation pressures and stable economic indicators.
### Fundamental Drivers Behind USD/CAD Weakness
The currency pair’s decline is not occurring in a vacuum. Several key economic themes are influencing the direction of USD/CAD:
#### 1. U.S. Dollar Softness
– **Fed’s Dovish Pivot**: The December 2023 Federal Open Market Committee (FOMC) meeting hinted at the end of the tightening cycle, with multiple policymakers projecting rate cuts in 2024. This stands in contrast to earlier expectations of a prolonged high-rate environment.
– **Declining Inflation**: U.S. inflation metrics continue to cool. Core PCE (Personal Consumption Expenditures) released on December 22 came in at 3.2% YoY, down from 3.4% the prior month, reinforcing expectations that the Fed may start cutting rates by mid-2024.
– **Labor Market Resilience But Slowing**: While job growth remains positive, softening wage increases and declines in job openings are signaling a cooling job market, aligning with slower economic growth prospects.
#### 2. Canadian Dollar Tailwinds
– **Firm Oil Prices**: Crude oil, a major export for Canada, experienced a mini-rally in the final week of the year. West Texas Intermediate (WTI) hovered near $74 per barrel, offering support to the loonie.
– **BoC Rate Stance**: While the Bank of Canada paused hikes in 2023, it has maintained a firmer tone compared to the Fed. Canadian inflation remains sticky, particularly in shelter costs and food prices, making rate cuts less imminent.
– **Domestic Stability**: Canadian GDP growth has been more resilient than predicted, driven by consumer spending and a modest rebound in manufacturing output.
### Technical Analysis: Momentum Suggests Further USD/CAD Losses
From a technical standpoint, USD/CAD continues to display clear bearish signals on multiple timeframes, reinforcing the likelihood of a continuation of the downward trend.
#### Key Levels to Monitor:
– **Immediate Support**: 1.3640 – Previously a key pivot in October and November 2023. A firm break under this level exposes 1.3580 and potentially 1.3500.
– **Initial Resistance**: 1.3720 – The
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