USD/CAD forecast: Downtrend intact ahead of BOC decision

The USD/CAD price retreated to the lowest level since April 22nd ahead of the upcoming interest rate decision by the Bank of Canada (BOC). The pair is trading at 1.2655, which is about 3.26% below the highest level in May.

BOC interest rate decision

The Bank of Canada will conclude its two-day meeting on Wednesday and deliver its rate decision. Analysts expect that the bank will hike interest rates by 0.50% to 1.50%. If this happens, it will be the third time that the bank hiked interest rates this year. It initially hiked interest rates by 0.25% in its March meeting and then continued with the same trend in April.

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The bank’s goal is to fight the soaring inflation. The most recent economic numbers revealed that Canada’s inflation surged to 6.8% in April, the highest it has been since January 1991. This increase happened as Canada’s energy costs remained at elevated levels during the month. Similarly, food prices kept rising, signaling that inflation is now more broad-based.

The BOC is not the only major central bank that is hiking interest rates. The Fed has already hiked rates by 0.75% this year and it has hinted that it will implement more hikes later. Similarly, the Bank of England has made four rate hikes while the European Central Bank is expected to move this year.

The decision comes a day after the Canadian statistics agency published the latest GDP numbers. The data revealed that the country’s economy expanded by 8.1% in the first quarter leading to a YoY increase of 2.89%. These numbers signal that the Canadian economy is in a slow state of recovery. 

The next key catalyst for the USD/CAD pair will be the upcoming US non-farm payroll data. These numbers are expected to show that hiring slowed in May.

USD/CAD forecast

The four-hour chart shows that the USD/CAD pair has been in a strong bearish trend in the past few days. The pair managed to move below the important level at 1.2903, which was the highest level on March 8th. It also moved below the neckline of the head and shoulders pattern.

The USDCAD price has moved below the 25-day and 50-day moving averages while the MACD has moved below the neutral line. The pair will likely keep falling ahead of the upcoming BOC decision.