**USD/CAD Maintains Bullish Momentum as Key Central Bank Decisions Loom**
*Adapted from the original article by Matt Weller at FOREX.com.*
The USD/CAD currency pair is maintaining its bullish trajectory as financial markets brace for crucial monetary policy decisions from two major central banks: the Bank of Canada (BoC) and the U.S. Federal Reserve (Fed). The exchange rate between the U.S. dollar and the Canadian dollar has seen upward momentum in recent weeks, largely fueled by hawkish expectations for the U.S. economy, coupled with more dovish outlooks for Canada.
The upcoming central bank meetings could significantly shape the short- to medium-term trend of USD/CAD. Traders and analysts widely anticipate divergent paths for these two central banks, possibly leading to expanded interest rate differentials that could favor a stronger U.S. dollar.
This article delves into the current state of the USD/CAD, examines the macroeconomic backdrop influencing the pair, reviews recent price action, and highlights key technical levels and potential future scenarios.
## Macroeconomic Context: Diverging Growth and Policy Paths
The current USD/CAD trend reflects broader macroeconomic dynamics between the U.S. and Canada.
### United States: Resilient Economy and Sticky Inflation
– The U.S. economy has remained relatively resilient despite higher interest rates.
– Recent data, including strong labor market figures and sticky core inflation, have prompted investors to dial back expectations for aggressive Fed rate cuts.
– The Federal Reserve has signaled that it will adopt a data-dependent approach, keeping rates elevated for longer to tame inflation.
– While the markets had anticipated several rate cuts in 2024, current Fed guidance and economic data suggest only one or two cuts may happen, if any.
### Canada: Disinflation in Progress and Slower Growth
– In contrast, Canada has shown signs of economic slowdown.
– GDP growth has weakened, and inflation has moderated more than in the U.S.
– The BoC has already initiated its first rate cut cycle with markets expecting further easing in the coming months.
– Canadian labor market data has also softened, including lower job creation and rising unemployment.
These diverging macro trends are creating a fundamental basis for USD strength and CAD weakness in the near term.
## Upcoming Central Bank Meetings
The Bank of Canada and the U.S. Federal Reserve are both set to meet within a short span, and markets are keenly watching how each central bank will steer monetary policy for the remainder of 2024.
### Bank of Canada – Likely to Continue Rate Cuts
– The BoC reduced its policy rate by 25 basis points in its previous meeting.
– Markets are expecting another rate cut in the next meeting or soon after, citing weak economic data and improved inflation outlook.
– The BoC’s dovish tone has positioned it as one of the first G7 central banks to begin monetary easing.
### Federal Reserve – Holding Ground for Now
– Market expectations suggest the Fed will keep rates steady at the upcoming meeting.
– The Fed’s Summary of Economic Projections (dot plot) and Chair Powell’s press conference will be closely watched for guidance on future rate changes.
– Traders will analyze the Fed’s inflation outlook and labor market commentary to assess its level of hawkishness.
A continuation of the current path—cutting rates in Canada and maintaining rates in the U.S.—would widen the interest rate differential in favor of the U.S. dollar, potentially propelling USD/CAD higher.
## Technical Analysis: Bullish Structure Intact
USD/CAD remains in a well-defined bullish uptrend, underpinned by strong technical foundations.
### Key Chart Observations
– The pair recently broke above resistance at 1.3700, turning it into a new support level.
– USD/CAD is currently testing the 1.3800 level, which has acted as resistance in several prior occasions.
– A break above 1.3800 would open the door to
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