**Canadian Dollar Outlook: USD/CAD Breaks 200-Day Moving Average Ahead of Fed and BoC Decisions**
*Adapted and expanded from the original article by Matthew Weller for FOREX.com*
The Canadian dollar (CAD) has found itself under considerable pressure against the US dollar (USD) in recent trading sessions, with the USD/CAD currency pair breaking notably above its 200-day moving average. This development comes at a critical time, just ahead of two significant central bank policy meetings: the U.S. Federal Reserve (Fed) and the Bank of Canada (BoC). These events are expected to exert substantial influence on the direction of the Canadian dollar and broader North American currency markets.
This article explores the factors behind the CAD’s latest decline, examines the technical outlook for USD/CAD, and analyzes upcoming risks and events that could shape the pair’s direction in the coming weeks.
## Key Developments Impacting USD/CAD
There are several forces currently impacting the USD/CAD exchange rate:
– **Increased demand for the US dollar** as traders position ahead of the June 2024 Federal Reserve meeting
– **Weaker Canadian economic data** raising expectations of future interest rate cuts by the Bank of Canada
– **Diverging monetary policy expectations** between the Fed and the BoC
– **Break above the 200-day moving average**, signaling technical momentum for further USD strength
– **Fluctuating oil prices**, which play a critical role in CAD performance
### A Tale of Two Central Banks
The USD/CAD pair is highly sensitive to monetary policy developments in both the United States and Canada. With back-to-back central bank meetings scheduled — the Bank of Canada on June 5 and the Federal Reserve on June 12 — investors are bracing for potentially market-moving decisions and rhetoric.
#### Bank of Canada (BoC) Outlook
The BoC is widely seen as being further along the monetary easing cycle than the Fed. Following a robust tightening phase to combat inflation that reached a four-decade high in 2022, inflation in Canada has cooled considerably. This cooling trend, combined with sluggish economic growth and rising unemployment, has led markets to expect a possible interest rate cut in the June 2024 policy meeting.
Recent key indicators fueling expectations of BoC easing:
– **Consumer Inflation**: April 2024 CPI rose only 2.7% year-over-year, comfortably within the BoC’s target range
– **Core inflation** (closely watched by policymakers) has also slowed to around 2.4%, suggesting reduced underlying price pressures
– **Canadian GDP** in Q1 2024 came in lower than expected, growing just 1.7% year-over-year, pointing to overall sluggish demand
– **Labour market softness**: The unemployment rate rose to 6.2% in May, suggesting reduced wage pressure and room for looser monetary policy
These data points have solidified calls among economists and analysts that the BoC may begin cutting rates in its June or July meeting. A rate cut would put downward pressure on the CAD, particularly if the Fed keeps rates elevated, widening the yield spread between the two economies.
#### Federal Reserve Outlook
In contrast, the US economy has remained resilient, and inflation remains sticky. The Fed has signaled that it is in no hurry to begin cutting rates. Instead, the central bank has maintained a cautious, data-dependent approach. This divergence between the Fed’s hold stance and the BoC’s dovish inclination has played a major role in driving USD strength.
Supporting data and outlook for the Fed’s rate path:
– **US CPI Inflation**: The April 2024 CPI print was 3.4% year-over-year, still significantly above the Fed’s 2% target
– **Core PCE Inflation**, the Fed’s preferred metric, climbed 2.8% — another sign that inflation pressures remain entrenched
– **US Labor Market
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