The USD/CAD forecast paints a bullish picture with the Canadian dollar on the back foot ahead of the BoC policy meeting, where markets believe there will be a rate cut. Meanwhile, the dollar was weak after a series of poor data and ahead of crucial service sector numbers.

After months of speculation, the time has come for the Bank of Canada to decide whether to cut rates or continue holding them. Since the year began, Canada’s economy has slowed down while inflation has neared the central bank’s target. As a result, there has been a lot of pressure on the BoC to cut interest rates. Notably, the most recent data revealed weaker-than-expected growth in Canada, raising the chances of a cut later in the day.

Markets are placing a 75% chance that the central bank will cut rates. However, the focus will be on the outlook for rate cuts. Experts have said the BoC will be comfortable cutting rates at least three times before the Fed. 

Further downside pressure for the loonie came from a decline in oil prices. Oil fell as traders worried about looming supply increases when the OPEC ends its output cuts. At the same time, a rise in crude inventories hurt sentiment.

Meanwhile, the dollar struggled in a weak position after data this week raised chances that the Fed will cut rates in September. A surprise drop in US job vacancies further showed weakness in the labor market. Markets are still pricing in a 59% chance that the Fed will cut rates in September.

USD/CAD key events today

• US ADP non-farm employment change
• Bank of Canada policy meeting.
• US ISM services PMI

USD/CAD technical forecast: Bulls target new peaks above the 30-SMA

USD/CAD 4-hour chart

On the technical side, the USD/CAD price has broken above the 30-SMA, retested it and is now seeking new highs. Moreover, the RSI trades above the 50 level, showing strong bullish momentum. 

However, the price is still caught in a shallow, bearish channel. Therefore, the bullish move will meet a solid barrier at the channel resistance around the 1.3720 level. It will take a strong catalyst to push the price beyond the channel resistance. Such a breakout would allow bulls to retest the 1.3780 level.

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