The USD/CAD outlook remains bearish as the Canadian dollar holds firm after Friday’s upbeat GDP report. Meanwhile, the US dollar recovered but remained fragile after data further confirmed that inflation was easing towards the Fed’s 2% target.

The Canadian dollar ended the month 0.3% lower, weakened by the Bank of Canada’s first rate cut. The central bank was confident enough to lower borrowing costs as inflation eased. At the same time, the economy had slowed down significantly and struggled to grow since 2023. Consequently, the rebound in April showed a rebound that led to a decline in rate cut expectations. 

Canada’s Gross Domestic Product increased by 0.3% in April as expected. After this report, markets lowered the likelihood of a rate cut in July from 65% to 45%. 

On the other hand, the US dollar fell when data revealed softer inflation in May. The core PCE price index is the Fed’s best inflation measure. It showed the annual figure easing to 2.6% in May, meeting forecasts. This is a step closer to the Fed’s 2% target and paves the way for rate cuts. As a result, traders were more confident that the Fed would cut rates starting September, raising this likelihood to 63%.

However, policymakers might wait for more data to confirm this downtrend. The next major report comes on Friday, showing the state of the labor market. Economists expect fewer jobs in June than the previous month. Such an outcome would further support rate-cut expectations.

USD/CAD key events today

• US ISM Manufacturing PMI

USD/CAD technical outlook: Price retests 30-SMA after breaking below

USD/CAD 4-hour chart

On the technical side, the USD/CAD price is challenging the 30-SMA resistance after bears pushed the price below the level. The general trend points south as the price makes lower highs and lows. At the same time, it trades within a bearish channel with clear support and resistance lines.

The price recently retested the channel resistance line near the 1.3720 key level before dropping. Therefore, there is a high chance it will reach the channel support. If the price stays below the 30-SMA with the RSI under 50, bears might revisit the 1.3640 support and continue lower.

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