USD/CAD Forecast: Detailed Analysis

USD/CAD Forecast: Detailed Analysis

USD/CAD Forecast

The recent rebound of USD/CAD from a level of 1.35 on October 4th, to 1.38 on October 11th, 2022 is because jobs data released by the US labor department last week came above expectations.

Last week was an important week for USD/CAD. It closed lower by 0.6%, after gaining for three straight weeks. The primary reason for such reversal is the warning by global agencies that such continued interest rate hikes by the US and other governments may lead to recession for a long-sustained time.

In this article, we will look at an important ratio of USD/CAD. Being currencies of two very important nations around the globe, this ratio impacts the inflow and outflow of investors’ money in a major way.

We will look at the factors and also technical analysis of this important ratio.

USD/CAD Forecast: Factors Affecting USD/CAD

Crude Oil Prices

Canada is a major oil exporter and its currency is dependent on the prices of crude oil. High crude prices mean a high value of CAD and vice versa.

USD/CAD Forecast: Detailed Analysis

When oil prices are very low, around $21 in 2003-2004, USD/CAD was trading at almost 1.6. It cooled off and came at par in 2009 when WTI hit a high of $115. Fast forward to 2022, WTI has shown signs of retreat after hitting a high of $115 in March 2022 and is trading at $89 as of 11.10.2022. It has made USD/CAD jump to 1.38 from lows of 1.2 in May 2022.

OPEC+ decided to cut oil production by 2 million barrels per day in the meeting on October 5th, 2022. As a reaction, WTI shot up from lows of $76 per barrel on 26th September to $92 on 7th October. In parallel to it, USD/CAD cooled off from 1.38 on 26th September to 1.35 on October 4th, 2022. The period of production cut starts in November, and its real impact will be seen in the coming months only.

However, in recent months, the US has also become a major oil exporter and its dependence on oil imports has reduced considerably, giving extra strength to the US dollar.

Interest Rate Hike by US FED

The aggressive hawkish stance of the US FED to curb inflation in the US. This year, the FED has hiked the interest rate five times in six meetings. There is a possibility of a hike of about 1.25% in the upcoming two meetings scheduled in November and December. The interest rate hike by FED reduces the supply of the US dollar in the country and around the globe and hence it gives strength to the US dollar against all major currencies.

The recent rebound of USD/CAD from a level of 1.35 on October 4th, to 1.38 on October 11th, 2022 is because jobs data released by the US labor department last week came above expectations. 265,000 jobs are created in the last month against expectations of 250,000. It states that the US economy is in good shape despite such an interest rate hike, and there is room available with FED to further increase the interest rate.

US inflation data for September which was released today came in at 8.2%, this should lead to least a 75-basis point hike in the upcoming November meeting. As long as FED will keep increasing the interest rate, USD will trade at least above 1.3 as compared to CAD.

Bond Yields to support CAD

While it is true that FED is increasing the interest rates at every FOMC meeting the Bank of Canada (BOC) is not too behind either. BOC has increased interest rates in the last five consecutive meetings. As a result, a 2-year Canadian bond yield is about 3.8%, compared to the bond yield in Germany at 1.6% and in Japan at -0.7%. Hence, CAD is expected to gain against low-yield currencies. Last month, BOC increased the rates by 0.75% and the policy rate stands at 3.25%.

In other words, BOC is keeping up pace with FED in terms of rising interest rates and that has controlled the further fall of CAD against the USD.

USD/CAD Forecast: Technical Analysis of USD/CAD

Below is a snapshot of the USD/CAD chart on a weekly basis.

The chart shows the cyclical trend of USD/CAD. USD hit a high of 1.46 on the previous two occasions, once in 2016 at the time of Brexit and then in March 2020, in the panic of Covid 19. Conversely, it hit a low of 1.2 in 2017 and 2021. The above chart shows a double top being formed at 1.46 and triple bottom being formed at 1.2. And therefore, 1.46 is very strong resistance going forward and 1.2 is very strong support. A new trend will appear if USD/CAD breaks these levels going forward.

Presently, USD/CAD is trading at 1.38, talking about the short term, the next support lies at 1.366 and then very strong support at 1.3. The resistance level is broken, and the next resistance lies at 1.46 only.

The above chart shows a few technical indicators for USD/CAD. The RSI is close to 67, which indicates that it is inching toward the overbought zone. However, RSI sustained over the 70 mark in recent days, showing that there can be more upside before a significant correction.

The Bollinger band is plotted showing the next resistance can be around 1.39, the upper end of the Bollinger band. Also, the middle line of Bollinger band is at 1.35 and hence it can prove to be good support. 200 days EMA lies at the 1.29 level, and in case there is a strong correction, 1.29 can be very strong support.

What Lies Ahead for CAD?

Technically, USD/CAD is in strong bullish momentum poised to touch new heights. One factor that supports this thesis is sentiments. Investors’ mood has been cautious of late and the US dollar is benefiting from it. It is considered safe haven for investment in a time of uncertainties.

The factors in favor of CAD include likely oil price increases from November when OPEC reduces oil production and rising interest rates by BOC. But USD/CAD will be dictated by FED policy in November and December. Until some unusual things happen, USD/CAD is expected to touch a high of 1.46 by December end, before starting on a fresh note in 2023.

Pound to Dollar Forecast: Detailed Analysis

Note: Crowdwisdom360 collates Predictions and data from all over the net and has no in-house view on the likely trends in the Stocks or Crypto Coins. Please consult a registered investment advisor to guide you on your financial decisions.



Subhash, Founder of Crowdwisdom360 is an MBA and a Trained Financial Advisor with an extensive background in Forecasting in Financial Services and Politics. He has appeared many times on National TV and has written for a variety of magazines on Wealth Management and Election Strategy.