USD/CAD Price Forecast: Approaches monthly high of 1.3890 as US Dollar outperforms
- USD/CAD jumps to near 1.3875 as the US Dollar trades firmly.
- Fed’s Powell warns caution on further interest rate cuts.
- Investors await the Canadian monthly GDP data for July.
The USD/CAD pair trades 0.3% higher to near 1.3875 during the European trading session on Wednesday. The Loonie pair gains as the US Dollar (USD) outperforms its peers, following comments from Federal Open Market Committee (FOMC) members, including Chair Jerome Powell, that the central bank needs to exercise caution regarding further interest rate cuts.
At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, jumps 0.55% to near 97.75.
US Dollar Price Today
The table below shows the percentage change of US Dollar (USD) against listed major currencies today. US Dollar was the strongest against the Japanese Yen.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | 0.55% | 0.48% | 0.58% | 0.30% | -0.13% | 0.39% | 0.44% | |
| EUR | -0.55% | -0.08% | 0.02% | -0.25% | -0.68% | -0.16% | -0.11% | |
| GBP | -0.48% | 0.08% | 0.08% | -0.17% | -0.54% | -0.09% | -0.07% | |
| JPY | -0.58% | -0.02% | -0.08% | -0.28% | -0.69% | -0.27% | -0.15% | |
| CAD | -0.30% | 0.25% | 0.17% | 0.28% | -0.40% | 0.07% | 0.15% | |
| AUD | 0.13% | 0.68% | 0.54% | 0.69% | 0.40% | 0.52% | 0.60% | |
| NZD | -0.39% | 0.16% | 0.09% | 0.27% | -0.07% | -0.52% | 0.08% | |
| CHF | -0.44% | 0.11% | 0.07% | 0.15% | -0.15% | -0.60% | -0.08% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
On Tuesday, Fed Chair Powell warned that near-term risks to inflation have tilted to the upside and risks to employment to the downside. Powell characterized the situation as a “challenging” one for the economy. He added that the current interest rate range is “well-positioned to respond to potential economic developments”.
On the contrary, Fed Vice Chair for Supervision Michelle Bowman has argued in favor of reducing interest rates quickly to support slowing job market. "If demand conditions do not improve, businesses may need to begin to lay off workers," Bowman said.
This week, the Canadian Dollar (CAD) will be influenced by the monthly Gross Domestic Product (GDP) data for July, which will be released on Friday. The Canadian economy is expected to have grown by 0.1%, the same pace at which it declined in June.
USD/CAD extends its winning streak for the third trading day on Wednesday. The pair has also extended its upside above the 200-day Exponential Moving Average (EMA), which trades around 1.3848.
The 14-day Relative Strength Index (RSI) jumps to near 60.00. A fresh bullish momentum would emerge if the RSI breaks above that level.
Going forward, a recovery move by the pair above the August 22 high of 1.3925 would open the door towards the May 15 high of 1.4000, followed by the April 9 low of 1.4075.
On the flip side, the asset could slide towards the round level of 1.3600 and the June 16 low of 1.3540 if it breaks below the August 7 low of 1.3722.
USD/CAD daily chart
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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