Forecast for USD/CAD: Dollar Strengthens Against Loonie
The USD/CAD pair appears bullish overall, but there is some turbulence just above that will be challenging to break out of. Data on the Gross Domestic Product (GDP) of Canada for the fourth quarter has been released; it shows no growth and a 0% increase quarter over quarter. This number falls short of the anticipated 2.9% growth, which is attributed primarily to the decline in business investment and inventory buildups.
The Bank of Canada (BoC) is unlikely to increase interest rates further, according to this report, as doing so could weaken the economy's weak growth by raising the cost of borrowing. This GDP data confirms the BoC's earlier declaration that it would halt rate increases during its most recent monetary policy meeting.
The Canadian dollar (CAD) is negatively impacted by this news, and it is anticipated that the USD/CAD currency pair will strengthen even more because the US Federal Reserve (Fed) is still expected to continue its cycle of tightening. There is a rumor circulating in the financial markets that the Fed may raise rates to as high as 6%, according to some pundits.
Technical Outlook for USD/CAD
The USD/CAD increased after the publication of this data, rising to a daily high of 1.3609. The major retraced and settled in the 1.3590s range after the initial reaction to the news, though. The USD/CAD pair appears bullish overall, but there is some turbulence just above that will be challenging to break out of.
If we do, this pair might find itself resuming its climb toward the November high of 1.38. Before all is said and done, however, the oil market might have something to say because the Loonie is greatly influenced by crude oil prices.
One would have to assume that systematic traders may also be bullish at this time since the pair has broken above several moving averages on the way up. The lack of growth in Canada will continue to be a major problem for the Canucks, while the dollar has recently been acting like a wrecking ball against almost everything.
The Great White North's housing problems are hurting the Loonie as well, and since the Bank of Canada doesn't appear likely to raise interest rates any time soon, likely, the CAD will eventually depreciate not just against the dollar but also against other important currencies like the British Pound, Euro, and Franc. Regardless of its trend line, this pair will probably be choppy.