**USD/CAD Forecast: Continued Upside Potential Above 1.4000 on Strong US Dollar Performance**
*Originally reported by Christian Borjon Valencia for FXStreet*
The USD/CAD currency pair has witnessed increased bullish momentum as the pair hovers near the psychological 1.4000 level. A variety of fundamental and technical factors are aligning to support further appreciation in the US dollar against the Canadian dollar. This dynamic is driven by resilient US economic data, hawkish rhetoric from Federal Reserve officials, diverging central bank policy paths between the US and Canada, as well as volatility in oil markets, which impact the Canadian dollar due to Canada’s commodity-exporting profile.
This article provides an in-depth USD/CAD outlook, diving into macroeconomic catalysts, technical setups, and potential scenarios for traders and investors to watch in the near future.
## Key Highlights
– USD/CAD trades above 1.3700 with scope for further gains towards 1.4000 and beyond.
– Strong US economic indicators continue to bolster the US dollar.
– Hawkish Federal Reserve commentary supports the greenback.
– The Bank of Canada shifts to a more cautious stance amid signs of economic slowdown.
– Falling oil prices limit support for the Canadian dollar.
– Bullish technical structure in USD/CAD suggests buyers remain in control.
## US Dollar Strength: The Driver Behind USD/CAD Bullishness
The US dollar has experienced a broad rally over recent weeks, with the US Dollar Index (DXY) rising as traders price in a prolonged period of higher interest rates in the United States. This has significantly impacted USD/CAD, pushing the pair higher.
### Contributing Factors to USD Strength:
– **Robust US Economic Data**: Recent indicators such as strong Nonfarm Payrolls, resilient services sector activity, and better-than-expected retail sales have all contributed to the “higher for longer” narrative about interest rates.
– The September US Nonfarm Payrolls report came in at an unexpectedly high 336,000 jobs, well above forecasts of 170,000.
– The ISM Services PMI for September was reported at 53.6, signaling expansion in the services sector.
– Consumer confidence and personal spending have held steady, highlighting economic endurance.
– **Hawkish Fed Commentary**: Federal Reserve officials, including Chair Jerome Powell and Governor Michelle Bowman, have reiterated their willingness to hike interest rates further if inflation doesn’t cool.
– Neel Kashkari, President of the Minneapolis Fed, emphasized in recent comments that inflation remains a concern and that rates may stay elevated into late 2024.
– Michelle Bowman stated that additional rate increases are likely if inflation remains above the Fed’s 2% target.
– **Sticky Inflation**: The US economy continues to experience relatively sticky price pressures. Although inflation has cooled from its peak, the disinflationary progress has not been consistent enough to warrant a shift in Fed policy.
## Bank of Canada Turns Cautious
Though the Bank of Canada (BoC) had been part of the aggressive global rate-hiking cycle, increasing its policy rate to 5% over the past year to tackle inflation, there are signs that the Canadian central bank may now pause further increases amid signs of economic weakness.
### Bank of Canada Policy Overview:
– **Economic Slowdown in Canada**:
– The Canadian economy contracted in Q2 2023 at an annualized rate of 0.2%.
– Labour market data is showing signs of softening, with the unemployment rate ticking up to 5.5% in September.
– Consumer spending has slowed, and the housing market has shown vulnerabilities under the weight of higher rates.
– **Governor Tiff Macklem’s Dovish Signals**:
– In recent communications, Macklem suggested that the BoC is now watching to see how prior rate hikes affect the economy, rather than actively pursuing new increases.
– Market participants now expect
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