• The USD/CAD forecast points to strength in the oil markets, which is boosting the loonie.
• China and the US will hold trade talks on Saturday.
• The Fed will likely keep rates on hold.

The USD/CAD forecast points to strength in the oil markets due to hopes of a trade deal between China and the US. As a result, the commodity-sensitive Canadian dollar gained. However, the move was subdued as market participants looked forward to the FOMC policy meeting.

Oil prices rose Wednesday after reports that China and the US will hold talks on Saturday. The news raised hopes of an end to the trade war between the two countries. Market participants have remained cautiously hopeful for a de-escalation of this trade war. It has significantly reshaped the outlook for the global economy. 

Experts are forecasting weaker growth, which will impact oil demand. Canada is a major exporter of oil. Therefore, lower oil prices hurt the loonie. However, talks between China and the US have raised hopes of a better future for oil and Canada’s economy. 

Meanwhile, the US economy showed resilience in April, lowering expectations for a Fed rate cut in June. Employment was stronger than expected, and business activity in the services sector continued expanding. 

The Fed will likely keep rates on hold. However, traders are pricing the first cut in July. Trump announced a new tariff on the film industry on Sunday. If he continues his campaign, the US economy will suffer, and the Fed might be forced to cut interest rates.

USD/CAD key events today

• Federal Funds Rate
• FOMC Statement
• FOMC Press Conference

USD/CAD technical forecast: Bearish breakout shows weak momentum

(Click on image to enlarge)

USD/CAD 4-hour chart

On the technical side, the USD/CAD price has broken below the 1.3900 support level. At the same time, it has broken out of its consolidation area between the 1.3900 support and the 1.4102 resistance. However, the breakout has been weak. The price is still clinging to the 30-SMA.

Meanwhile, the RSI still shows a bullish divergence, indicating fading momentum. If bears are weak, they might not sustain a move lower for longer before bulls return. Still, USD/CAD might soon reach the 1.3800 support. 

However, a break above the SMA will signal a bullish sentiment shift. The trend will only change when the price starts making higher highs and lows. Otherwise, bears will regain enough momentum to continue the downtrend.

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