• The USD/CAD forecast shows a cautious Bank of Canada that has boosted the Canadian dollar. 
• Market participants are pricing a 45% chance of a BoC rate cut in July.
• Data revealed weaker-than-expected US private employment.

The USD/CAD forecast shows a cautious Bank of Canada that has boosted the Canadian dollar. At the same time, downbeat data from the US weighed on the dollar, allowing most of its peers to climb. 

The Bank of Canada kept rates unchanged as expected on Wednesday. It was the second pause as policymakers wait to see the full impact of Trump’s trade policies. The pause allowed the loonie to climb against the dollar. At the same time, rate cut expectations eased slightly after the meeting. Currently, market participants are pricing a 45% chance of a rate cut at the July meeting. 

Meanwhile, the US dollar collapsed against its peers after data revealed weaker-than-expected US private employment. The private sector added only 37,000 new jobs in May, compared with forecasts of 111,000 jobs. The miss indicated an unexpected weakness in the labor market. It raised concerns of more downbeat employment figures that could pressure the Fed to cut interest rates.

A separate report revealed that business activity in the US services sector contracted. The ISM PMI came in at 49.9 compared to estimates of 52.0. This followed another report showing further contraction in the manufacturing sector. All these point to weakness in the economy as a result of Trump’s tariffs.

USD/CAD key events today

• US unemployment claims

USD/CAD technical forecast: RSI divergence suggests weakness

(Click on image to enlarge)

USD/CAD technical forecast

On the technical side, the USD/CAD price has broken below the 1.3701 key support level with a solid bearish candle. The move has allowed bears to retest the 1.3650 key level. Moreover, the price now sits far below the 30-SMA, with the RSI near the oversold region, supporting a bearish bias.

However, although the price has made a lower low, the RSI has made a slightly higher one, a sign that bearish momentum is weaker. This weakness might allow bulls to return for a deep pullback. In such a case, the price might bounce to break above the 30-SMA.

However, if bears remain in the lead, USD/CAD will stay below the SMA. Moreover, a break below the 1.3650 level would strengthen the bearish bias.

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