USD/CAD Tumbles Below 1.4000 as US Dollar Weakness Persists
The US dollar weakness has led to a decline in USD/CAD, which broke below 1.4000 and is now trading near 1.3877. This marks its third consecutive weekly drop since early July.
The Canadian dollar has been gaining strength due to the broad weakening of the US dollar, higher oil prices, and firmer domestic data. In contrast, moderating inflation in the US, softer consumer spending, and signs of a cooling labor market have reduced expectations for a Federal Reserve rate hike next month.
CANADA'S CONSUMER PRICE INDEX RELEASE NEXT WEEK WILL BE KEY TO UNDERSTANDING THE BANK OF CANADA'S POLICY PATH. TD Securities believes that the BoC's decision on September 2 will place more weight on a softer core inflation profile, as higher oil prices have limited pass-through and the output gap is narrowing gradually.
The USD/CAD pair has been posting lower highs and lower lows since reversing from above 1.4200 in late June, breaking below both the 50-day and 100-day Simple Moving Averages. The Relative Strength Index (RSI) sits at 29, indicating oversold conditions, with a statistical probability of a short-term price bounce within the next ten trading days.