**Canadian Dollar Forecast: USD/CAD Consolidates Amid Technical and Fundamental Crosswinds**
By FOREX.com (Original article by David Song)
The USD/CAD currency pair continues to trade in a zone of consolidation, holding just below a descending trendline that has defined price action since the beginning of 2024. This tightening range suggests a potential breakout as markets interpret mixed signals from economic data, central bank outlooks, global risk sentiment, and commodity price fluctuations. Pressure is building as traders and investors gauge which direction the pair will take heading into the final quarter of the year.
This analysis delves deeper into the fundamental drivers and technical structure surrounding USD/CAD, providing a comprehensive view of the Canadian dollar’s outlook for the months ahead.
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## Technical Analysis: USD/CAD Below Key Resistance
USD/CAD remains compressed beneath a yearly downtrend line, failing to break significantly above this key resistance. The pair briefly tested levels above the 1.37 handle in mid-August but has since pulled back, hovering around the 1.36 area.
Key technical observations:
– Price remains under a descending trendline that extends from the 2024 highs set in March.
– A series of lower highs indicates weakening bullish momentum.
– Immediate resistance lies near 1.3640, while strong support can be seen around the 1.3500 psychological level.
– A breakout above 1.3700 could confirm bullish continuation, especially if accompanied by strong U.S. economic data or a hawkish Fed outlook.
– However, a breakdown below 1.3490 would shift the bias toward a deeper correction, potentially targeting the 200-day moving average near 1.3360.
The Relative Strength Index (RSI) is tracking sideways near the neutral 50 zone, further confirming the lack of directional conviction. The oscillator’s behavior suggests the pair needs a fundamental catalyst to initiate a sustained move higher or lower.
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## Macroeconomic Drivers Supporting USD/CAD Tension
### 1. Federal Reserve Outlook
The U.S. dollar has gained support from relatively strong U.S. economic performance throughout 2024. However, Federal Reserve policy expectations have started to shift. Initially, markets anticipated two to three rate cuts by the end of the year. But as inflation data has remained sticky, the Fed has maintained a cautious tone.
– The latest U.S. Non-Farm Payrolls (NFP) report showed moderate job gains, but average hourly earnings reaccelerated, signaling continued wage inflation.
– Core PCE Inflation, the Fed’s preferred inflation gauge, remains stubbornly above the 2 percent target.
– Fed Chair Jerome Powell recently emphasized that the central bank remains data-dependent, leaving the door open for additional hikes if inflation fails to ease.
If the Fed signals further tightening, the U.S. dollar could extend gains against the Canadian dollar.
### 2. Bank of Canada Policy Divergence
The Bank of Canada (BoC) has paused its rate hiking cycle, adopting a more dovish stance compared to the Fed.
– At its September 2024 meeting, the BoC held its key overnight rate at 5.00 percent.
– Policymakers noted that economic momentum is slowing, with GDP growth decelerating and consumer spending weakening.
– Governor Tiff Macklem stated that the policy is “working as intended” and that inflation is on track to return to the 2 percent target by mid-2025.
If this divergence in central bank policies continues, it could pressure the CAD further against the USD.
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## Commodities and Their Impact on CAD
As a commodity-linked currency, the Canadian dollar tends to benefit from rising oil prices. Canada is one of the world’s largest crude exporters, meaning its currency is sensitive to fluctuations in energy markets.
– West Texas Intermediate (WTI) crude has held above $80 per barrel throughout much of Q3 2024, driven by supply cuts from OPEC+ and resilient global demand
Read more on USD/CAD trading.