Canadian Dollar (USD/CAD) Price Forecast: Loonie Gives Back Gains Ahead Of BoC Decision

The Canadian Dollar continues to trade within a well-defined range ahead of the Bank of Canada (BoC) interest rate decision on Wednesday. Despite recording a 7.2% increase in home sales for December 2020, the Loonie continues to take strain as an increase in Covid-19 related cases has resulted in fresh lockdown measures, hindering prospects of a swift economic recovery.

Although USD weakness helped buoy the demand for the CAD, the approval of an additional $1.9 Trillion of US Fiscal Stimulus has resulted in an increase in demand for long-term US Treasury Yields (10 & 30 year) which remain above 1%.

With interest rates already at record lows, the focus now turns to both unemployment and inflation, both contributing factors to central bank policies.

During periods of economic duress, risk sentiment has a tendency of favoring the safe-haven US Dollar, specifically as the highly anticipated US Fiscal Stimulus Package gets priced into the markets; long-term US Treasury yields continue to support USD strength.

(Click on image to enlarge)

Canadian Dollar (USD/CAD) Price Forecast: Loonie gives back gains ahead of BoC Decision

DailyFX Economic calendar


Currently, bulls trading USD/CAD have failed to push above the key psychological level of 1.2800, with price action threatening the bounds of Fibonacci support. The declining trendline now acts as resistance, forming a penchant for mean reversion while the Moving Average Convergence/Divergence (MACD) continues to lie below the zero line, indicating that the major currency pair may be bordering oversold territory.

USD/CAD Weekly Chart

(Click on image to enlarge)

USDCAD Weekly Chart

Chart prepared by Tammy Da Costa, IG

Meanwhile, the double bottom formation appearing on the four-hour chart indicates that bullish continuation may still be probable, specifically if bulls can break above current resistance, formed by the declining trendline.

USD/CAD 4 Hour Chart

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