**Canadian Dollar Outlook: USD/CAD Retains Bullish Momentum as Investors Eye Upcoming Central Bank Decisions**
*Adapted from original article by Matt Weller, FOREX.com, with additional insights and analysis*
The Canadian dollar (CAD) has been on the back foot against its U.S. counterpart (USD) as markets shift their focus to critical central bank decisions from both the Bank of Canada (BoC) and the U.S. Federal Reserve. The USD/CAD currency pair remains in a notable bullish trend, supported by diverging monetary policy expectations, weak Canadian economic data, and resurgent oil price volatility.
This article explores market sentiment toward the Canadian dollar, examines key technical and fundamental indicators, and highlights the potential impact of immediate and long-term policy decisions from central banks. It also reviews how macroeconomic trends, such as inflation, growth, and oil prices, could influence CAD’s performance ahead.
## Key Takeaways
– USD/CAD continues to hold above support as expectations mount that the Bank of Canada will lead in interest rate cuts.
– Diverging economic performance between the U.S. and Canada weighs heavily on CAD.
– Oil prices, while historically a strong support for CAD, have lacked consistent upward momentum to support the currency.
– Attention now turns to back-to-back central bank meetings: the BoC on June 5 and the Fed on June 12.
– Hawkish Fed rhetoric and strong U.S. job creation contrast with Canada’s slowing economic data, reinforcing the bullish bias in USD/CAD.
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## Central Bank Preview: Bank of Canada vs Federal Reserve
### Bank of Canada (BoC)
The Bank of Canada holds its next interest rate announcement on Wednesday, June 5, and market participants widely expect a dovish tilt or even an outright rate cut. Economists surveyed by Bloomberg have priced in a 70%+ probability of a 25 basis point cut, marking what could be the beginning of an easing cycle in Canada.
Factors supporting a BoC rate cut include:
– **Weak Canadian GDP Growth**: Canada’s economy showed stagnation in Q1 2024, with annualized growth coming in at only 1.7%. This underwhelming performance raises concerns about domestic resilience and further complicates the inflation outlook.
– **Soft Labor Market**: Employment gains in Canada have slowed, with wage growth beginning to plateau. Combined with rising job vacancies and a subdued participation rate among younger workers, the BoC may see room to stimulate.
– **Subdued Core Inflation**: Canada’s three core inflation measures continue trending toward the BoC’s 2% target. CPI readings in April showed annual inflation slowing to 2.7%, down from 2.9% in March.
– **Debt-Sensitive Households**: Canadian households carry some of the highest debt loads in the G7. As interest rates remain elevated, economic pressures may mount, justifying monetary easing.
In contrast, some market participants argue that a June cut may be premature, and the central bank could instead wait for more consistent evidence of inflation control before initiating a loosening cycle.
### U.S. Federal Reserve
On the other side of the currency pair, the U.S. Federal Reserve remains considerably more hawkish. The Federal Open Market Committee (FOMC) is expected to hold rates steady on June 12, and Chair Jerome Powell has emphasized the need for sustained disinflation before considering cuts.
Key support for continued Fed hawkishness includes:
– **Robust Labor Market**: The U.S. economy added 272,000 jobs in May, far exceeding market expectations. Unemployment rose slightly to 4.0%, but the headline and wage growth print suggest underlying labor strength.
– **Sticky Inflation**: The U.S. Personal Consumption Expenditures (PCE) inflation rate is hovering around the 2.7% level, with limited signs of further deceleration. Shelter and services inflation remain particularly sticky.
– **Resil
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