USD/CAD Forecast: Pair Retreats After Reaching New Peaks…

• The Bank of Canada cut interest rates by 50-bps on Wednesday.

• Oil rose nearly 1% early on Thursday after Hezbollah hit Israel with missiles.

• The greenback remained steady as market participants waited for the November US presidential election.

The USD/CAD forecast shows a pullback after the pair made new highs. The Canadian dollar dropped to an 11-week low on Wednesday after the Bank of Canada lowered borrowing costs by 50-bps. However, it recovered on Thursday as oil prices surged amid increased Middle East tensions. 

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The Bank of Canada cut interest rates by 50-bps on Wednesday as expected. Canada’s central bank remains the most aggressive among its peers, which has weighed heavily on the Canadian dollar. The rate cut pushed Canada’s currency to an 11-week low against the US dollar. 

However, the loonie rebounded on Thursday as an exchange of missiles in the Middle East pushed oil prices higher. Oil rose nearly 1% early on Thursday after Hezbollah hit Israel with missiles. The war is raging on despite calls for a ceasefire. Therefore, the risk of escalation will keep oil and the CAD supported.

Meanwhile, the greenback remained steady as market participants waited for the November US presidential election. Uncertainty over the possible outcome is sending more investors to safe-haven assets like the dollar and gold. 

At the same time, traders expect more economic data that will keep shaping the outlook for Fed rate cuts. Unemployment claims will show the state of the labor market. Meanwhile, PMI data will indicate the state of business activity in the manufacturing and services sectors. A resilient economy will lower bets for a November cut, which could mean a pause. On the other hand, weakness will solidify bets for two more rate cuts before the year ends.

USD/CAD key events today

• Unemployment Claims
• Flash Manufacturing PMI
• Flash Services PMI

USD/CAD technical forecast: Bulls exhausted near 1.3825 resistance

On the technical side, the USD/CAD price is challenging the 30-SMA support line. Bulls recently made a new high in the uptrend but failed to sustain a move above the 1.3825 resistance level again. Furthermore, although the price made a higher high, the RSI continued trending lower, showing a bearish divergence. 

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The divergence indicates exhaustion in the uptrend, which might allow bears to take over. If bears break below the SMA, the price will likely target the 1.3750 support level. Moreover, USD/CAD might start a downtrend.

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