The USD/CAD forecast leans bearish as the Canadian dollar firms after a brief rally in oil prices. At the same time, the loonie got support from a weaker US dollar after Powell made mildly dovish remarks regarding inflation.

Canada’s economy benefits when fuel prices increase, as the country is a net oil exporter. At the same time, the country’s currency rises. On Tuesday, oil briefly hit a two-month high, which helped the Canadian dollar rally against the US dollar. Moreover, the loonie held on to gains despite a pullback in oil prices.

Meanwhile, data from Canada showed the manufacturing sector remained in contraction in June. The manufacturing PMI held at 49.3, showing business activity was unchanged from the previous month. Notably, recent data on GDP and inflation has surprised to the upside. Consequently, expectations for BoC rate cuts have fallen. The chances of a cut in July fell below 50%. However, this might keep changing with incoming data.

On the other hand, the US dollar eased after Powell’s remarks in the previous session. Powell acknowledged that there was progress on inflation and that the central bank would likely cut rates later in the year. Although he did not signal the number of cuts or the timing, it was clear that he was more confident inflation was on a downtrend. Consequently, rate cut expectations rose.

Elsewhere, data revealed a surge in job vacancies in the US to 8.140 million compared to expectations of 7.910 million openings.

USD/CAD key events today

• US private employment change
• US jobless claims
• US ISM services PMI
• FOMC minutes

USD/CAD technical forecast: Bears in the lead after a false breakout

(Click on image to enlarge)

USD/CAD 4-hour chart

On the technical side, the USD/CAD price made a false breakout above its channel resistance before bears took back control. Consequently, the price made a whiplash move as sentiment shifted suddenly from bullish to bearish.

The price now trades below the 30-SMA, and the RSI is in bearish territory. Therefore, with bears in the lead, the price will likely continue lower to test the 1.3640 support level. This also means that the downtrend might continue with a lower low. However, if the price fails to make a lower low, bulls might make another attempt to break out of the bearish channel.

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