The USD/CAD pair is currently trading in a narrow range but is holding steady above the key support level of 1.3700 during the European session on Wednesday. This consolidation is happening amidst uncertainty surrounding the Federal Reserve’s (Fed) stance on interest rate cuts due to the difference in projections between the Fed and the market’s expectations.
The Fed has indicated a single rate cut this year based on its latest dot plot. However, the market is anticipating two rate cuts, especially after the US Consumer Price Index (CPI) report for May showed a decrease in discretionary spending by consumers. This decline in spending has led to a belief among investors that inflation is on a downward trend towards the Fed’s 2% target.
Despite the market’s expectations, Fed officials are looking for a sustained period of declining inflation before considering any rate cuts. This anticipation of rate cuts has capped the upside potential for the US Dollar (USD), which is reflected in the sideways trading of the US Dollar Index (DXY) around 105.20.
On the Canadian front, investors are eagerly awaiting the release of the Canadian Retail Sales data for April, scheduled for Friday. There is an expectation that the Retail Sales will show a positive trajectory after three consecutive months of contraction, with an estimated increase of 0.7%.
The USD/CAD pair has been consolidating within the range of 1.3600-1.3800 for nearly seven weeks. The Loonie asset is currently holding above the 200-day Exponential Moving Average (EMA) at 1.3690, indicating a bullish trend overall. The Relative Strength Index (RSI) is oscillating between 40.00-60.00, highlighting indecisiveness among traders.
If the asset breaks above the high of April 17 at 1.3838, it could lead to a bullish momentum towards the high of November 1, 2023, at 1.3900, and potentially reach the psychological resistance level of 1.4000. Conversely, a breakdown below the low of June 7 at 1.3663 could expose the pair to the lows of May 3 at 1.3600 and April 9 at 1.3547.
It’s important to note that the information provided contains forward-looking statements and should not be taken as investment advice. Investors are encouraged to conduct their own research before making any trading decisions. Trading in financial markets carries risks, and individuals should be aware of the potential losses involved. The views expressed in this article are those of the author and do not necessarily reflect the opinions of FXStreet or its advertisers.