USD/CAD forecast ahead of Canada inflation and retail sales data

The USD/CAD exchange rate has bounced back in the past few weeks, moving from a low of 1.3640 to the current 1.3915, it highest level since December 5. This article explores what is moving the pair this week and what to expect this week.

Canada to publish inflation report

The USD/CAD exchange rate will be in the spotlight as Statistics Canada publishes the latest consumer inflation report on Monday. 

Economists polled by Reuters expect the data to show that the country’s headline CPI remained unchanged at 2.2% in December. They expect the figure to move to minus 0.4% on a MoM basis after rising 0.1% in November.

Meanwhile, core inflation, which excludes the volatile food and energy products, is expected to come in at 2.8%, down from the previous 2.9%.

Canada’s inflation has remained near the Bank of Canada’s target of 2.0% in the past few months. Analysts anticipate that the country’s inflation will continue falling this year because of the ongoing energy prices retreat. 

The inflation report comes after the country’s statistics agency published the jobs numbers. These numbers showed that employment was little changed in December, rising by 8,200. This report was much lower than the previous three months’ gains, which added over 181,000 jobs.

Canada’s full-time jobs rose by 50,000, while part-time jobs plunged by 42,000. These numbers will be important as they come a week before the BoC delivers its interest rate decision. 

The BoC has delivered several rate cuts in the past few months. It moved them from the post-pandemic high of 5% to the current 2.5%. Analysts anticipate that the bank will deliver more cuts later this year in a bid to boost the economy. 

The other key Canadian data to watch this week will be the retail sales report that comes out on Friday. 

These numbers come a few days after China reached a deal with Canada. Canada agreed to slash tariffs on Chinese EVs, while China removed barriers on canola. 

Federal Reserve interest rate decision

The other key catalyst for the USD/CAD pair will be Supreme Court’s ruling on Donald Trump’s tariffs. This decision was expected to happen earlier this month, and analysts believe that it will come out this week. 

A decision to end these tariffs would be good for the Canadian economy because of the huge levies the US is charging. However, the benefits would be capped as the US still has tools to implement tariffs.

The Federal Reserve will deliver its interest rate decision next week. Economists expect the bank to leave interest rates unchanged between 3.5% and 3.75%.

USD/CAD technical analysis 

The daily timeframe chart shows that the USDCAD pair has rebounded in the past few days. It has moved from a low of 1.3640 to the current 1.3915. 

The pair has moved to the Major S&R pivot point of the Murrey Math Lines tool at 1.3916. It has also moved above the 50-day Exponential Moving Average (EMA). Also, the Relative Strength Index has moved close to the overbought level. 

Therefore, the most likely scenario is where it continues rising as bulls target the key resistance at 1.400. 

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