In anticipation of the forthcoming United States Consumer Price Index (CPI) data for March, the USD/CAD pair finds itself in a state of indecision, trading flat beneath the crucial resistance level of 1.3600 during Tuesday’s European session. Investors are eagerly awaiting insights from the CPI report, scheduled for release on Wednesday, which is expected to offer cues on the Federal Reserve’s potential interest rate adjustments.
Projections suggest a potential uptick in US annual headline inflation to 3.4% from February’s 3.2%, while core inflation, excluding volatile food and energy prices, is anticipated to marginally decrease to 3.7% from the previous 3.8%. The outcome of the inflation data may influence market sentiment regarding the timing of any interest rate shifts by the Federal Reserve, with softer figures possibly fueling speculation of rate cuts post-June meeting, and stronger data delaying expectations to the latter half of the year.
In tandem, the Canadian Dollar‘s trajectory will be influenced by the Bank of Canada’s (BoC) interest rate decision, also set to be announced on Wednesday. With expectations leaning towards the BoC maintaining the current interest rates at 5%, investor attention will be directed towards the bank’s forward guidance on borrowing costs. Concerns surrounding Canada’s labor market, grappling with the repercussions of elevated interest rates, coupled with the dip in the BoC’s preferred inflation gauge, core CPI, to 2.1% in February, could potentially prompt a dovish stance from the central bank.
Technically, the USD/CAD pair exhibits a consolidative phase, slightly retracing from the horizontal resistance of an Ascending Triangle formation observed on the daily timeframe, plotted since December. Notably, the 200-day Exponential Moving Average (EMA) around 1.3500 holds pivotal importance as a support level for US Dollar bulls.
Meanwhile, the 14-period Relative Strength Index (RSI) indicates a lack of clear direction, oscillating within the 40.00-60.00 range, reflecting market participants’ indecisiveness.
In the event of an upside breakout, a breach above the April 5 high at 1.3648 could propel the USD/CAD pair towards the round-level resistance of 1.3700, followed by the November 22 high at 1.3765. Conversely, a downside movement below the February 22 low at 1.3441 may expose the pair to the February 9 low at 1.3413, with further potential downside towards the January 15 low at 1.3382.
