USD/CAD Reverses Ahead of 2022 High with Fed Rate Decision on Tap

US Dollar Forecast: USD/CAD

USD/CAD appears to be reversing ahead of the 2022 high (1.3978) as the Relative Strength Index (RSI) falls back from overbought territory, and the Federal Reserve interest rate decision may drag on the exchange rate as the central bank is expected to deliver a 25bp rate cut.

USD/CAD Reverses Ahead of 2022 High with Fed Rate Decision on Tap

USD/CAD pulls back from a fresh yearly high (1.3959) after showing a limited reaction to the US Non-Farm Payrolls (NFP) report, and the move below 70 in the oscillatory is likely to be accompanied by a further decline in the exchange rate like the price action from earlier this year.

In turn, the opening range for November is in focus as USD/CAD comes under pressure going into the US election, and it remains to be seen if the upcoming change to fiscal policy will influence the Federal Open Market Committee (FOMC) as the central bank moves towards a neutral stance.

US Economic Calendar

The FOMC is anticipated to lower interest rates for the second consecutive meeting as Chairman Jerome Powell and Co. project that ‘the appropriate level of the federal funds rate will be 4.4 percent at the end of this year,’ and the central bank may continue to prepare US households and businesses for a less restrictive policy in an effort to avoid a recession.

With that said, the advance from the October low (1.3473) may continue to unravel as the recent decline in USD/CAD pulls the RSI back from overbought territory, but the exchange rate may stage further attempts to test the 2022 high (1.3978) if the FOMC delivers a hawkish rate-cut.

USD/CAD Price Chart – Daily

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

Keep in mind, USD/CAD cleared the August high (1.3947) as it marked a five-week rally for the first time since January, but the exchange rate initiates a series of lower highs and lows as it struggles to test the 2022 high (1.3978).
A break/close below the 1.3810 (161.8% Fibonacci extension) to 1.3850 (50% Fibonacci extension) zone may push USD/CAD back towards 1.3700 (38.2% Fibonacci extension), with the next area of interest coming in around 1.3630 (38.2% Fibonacci retracement).
Nevertheless, lack of momentum to close below 1.3900 (50% Fibonacci extension) may lead to further attempts to test the 2022 high (1.3978), with a break/close above the 1.3970 (61.8% Fibonacci extension) to 1.4000 (61.8% Fibonacci extension) region opening up the 1.4040 (23.6% Fibonacci retracement) to 1.4080 (78.6^ Fibonacci extension) area.

Additional Market Outlooks

Monetary vs Fiscal Policy: Implications for FX Markets

Euro Forecast: EUR/USD Recovery Persists Ahead of Euro Area CPI Report

British Pound Outlook: GBP/USD Recovery Emerges Ahead of UK Budget

USD/JPY Forecast: RSI Continues to Flirt with Overbought Zone

--- Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 69% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. CFD and Forex Trading are leveraged products and your capital is at risk. They may not be suitable for everyone. Please ensure you fully understand the risks involved by reading our full risk warning.

City Index is a trading name of StoneX Financial Ltd. Head and Registered Office: 1st Floor, Moor House, 120 London Wall, London, EC2Y 5ET. StoneX Financial Ltd is a company registered in England and Wales, number: 05616586. Authorised and regulated by the Financial Conduct Authority. FCA Register Number: 446717.

City Index is a trademark of StoneX Financial Ltd.

The information on this website is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement.