Canadian Dollar Vs US Dollar, British Pound, Euro – Outlook:

• CAD supported by a hawkish Bank of Canada rate.
• USD/CAD is attempting to break below a major sideway pattern.
• How do the crosses GBP/CAD and EUR/CAD look?

The Canadian dollar looks set to resume its rise against some of its peers, thanks to a still-hawkish Bank of Canada (BoC) and a potential base building in oil prices.

BoC hiked its key overnight rate by 25 basis points to a 22-year high of 5.0% last week and left the door open for further tightening as it doesn’t expect inflation to return to its 2% target before the middle of 2025. Headline inflation slowed to 2.8% on-year in June from last year’s high of over 8%.

BoC’s preferred measures of core inflation, CPI-median, and CPI-trim, however, continue to remain sticky at 3.8% and 3.9% respectively. Markets are pricing in around 20% odds of another rate hike at its next meeting in September.

CAD has lagged in the recent rally in commodity currencies but has the scope to rise. Besides, a still-hawkish BoC, CAD has also been supported by a potential base building in oil prices as OPEC+ output cuts start to spill over. As a result, speculative positioning in CAD has turned to longs for the first time since late 2022. Moreover, technical charts agree.

USD/CAD Daily Chart

Chart Created by Manish Jaradi Using TradingView

USD/CAD: Looming bearish break

USD/CAD’s minor rebound appears to be running out of steam, as highlighted in the previous update. See “Q3 Top Trade: Canadian Dollar Could Rise Further Against the US Dollar in the Third Quarter,” published July 5. The fall last week below the early-July low has opened the door for further weakness in USD/CAD. That’s because the pair’s fall in June below vital converged support around 1.3220-1.3320 has initially opened the gates toward the psychological 1.3000, potentially toward the August low of 1.2725.

GBP/CAD Daily Chart

Chart Created by Manish Jaradi Using TradingView

GBP/CAD: Stiff barrier ahead

GBP/CAD’s rally has succumbed to resistance at the early-2022 high of 1.7375, slightly above major resistance on the 200-week moving average. Moreover, the retreat below immediate support at the May high of 1.7140 suggests the bullish pressure has faded in the short term. The odds of a drop toward the June low of 1.6620 are rising.

EUR/CAD Daily Chart

Chart Created Using TradingView

EUR/CAD: Feeble momentum on the rebound

EUR/CAD’s rebound from June has lacked steam – the Moving Average Convergence Divergence (MACD) indicator has barely budged even as the cross is near its 18-month high of 1.5100. The lack of upward momentum is a sign that the cross’ multi-month rally is showing signs of fatigue. This follows a failed attempt to rise past a tough hurdle at the late-2021 high of 1.5100. A retreat back toward the June low of 1.4280 can’t be ruled out.

— Written by Manish Jaradi, Strategist for DailyFX.com

— Contact and follow Jaradi on Twitter: @JaradiManish