USD/CAD Rally Eyes August High as RSI Pushes into Overbought Zone

US Dollar Forecast: USD/CAD

USD/CAD climbs to a fresh monthly high (1.3839) as Canada’s Consumer Price Index (CPI) narrows for the fourth consecutive month, with the recent advance in the exchange rate pushing the Relative Strength Index (RSI) into overbought territory.

USD/CAD Rally Eyes August High as RSI Pushes into Overbought Zone

USD/CAD stages a ten-day rally as Canada’s CPI slips to 1.6% in September from 2.0% per annum the month prior, and evidence of slowing inflation may push the Bank of Canada (BoC) to further unwind its restrictive policy as ‘excess supply in the economy continues to put downward pressure on inflation.’

In turn, USD/CAD may continue to appreciate ahead of Bank of Canada (BoC) meeting on October 23 as ‘Governing Council members agreed they would like to see the economy grow at a rate above potential output to begin taking up the slack in the economy so that inflation does not fall too much and instead settles close to the 2% target.’

With that said, USD/CAD may further retrace the decline from the August high (1.3947) as it extends the bullish price series from last week, but the RSI may show the bullish momentum abating if it struggles to hold above 70.

USD/CAD Price Chart – Daily

Chart Prepared by David Song, Strategist; USD/CAD Price on TradingView

• USD/CAD marks the longest advance since January 2016 after failing to clear the March low (1.3420) during the previous month, and the move above 70 in the Relative Strength Index (RSI) is likely to be accompanied by a further advance in the exchange rate like the price action from earlier this year.
• Need a break/close above the 1.3810 (161.8% Fibonacci extension) to 1.3850 (50% Fibonacci extension) region to open up 1.3900 (50% Fibonacci extension), with the next area of interest coming in around the August high (1.3947).
• However, lack of momentum to break/close above the 1.3810 (161.8% Fibonacci extension) to 1.3850 (50% Fibonacci extension) region may pull the RSI back from overbought territory, with a move below 1.3700 (38.2% Fibonacci extension) bringing 1.3630 (38.2% Fibonacci retracement) on the radar.

Additional Market Outlooks

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Australian Dollar Forecast: AUD/USD Bearish Price Series Persists

--- Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong