Wednesday’s USD/CAD price analysis revealed a bearish sentiment as investors adjusted their expectations, stepping back from expecting interest rate cuts by the Bank of Canada in the upcoming months. This expectation shift came after domestic data revealed that Canada’s inflation held steady in November.

Meanwhile, analysts anticipated a decline to 2.9%. Therefore, they were surprised as Canada’s annual inflation rate was 3.1%. Moreover, the core inflation measures, CPI-median and CPI-trim, maintained their levels at 3.4% and 3.5%, respectively.

As a result, money markets now indicate a reduced 40% chance of the BoC easing in March, down from the previous 50% before the data release. At the same time, the likelihood of a cut next month dropped to 16.0% from 21.4%. Despite these adjustments, markets still anticipate the central bank to start easing, possibly in April.

Additionally, contributing to the rise in the Canadian dollar was the 1.3% increase in the price of oil due to worries about supply disruptions.

Meanwhile, the US dollar maintained its stability on Wednesday as traders assessed the likelihood of the US Federal Reserve starting interest rate cuts. Raphael Bostic, the president of the Atlanta Federal Reserve, restated on Tuesday that he anticipated two rate cuts in the latter half of the year. However, he emphasized that there is currently no “urgency” for such actions.

USD/CAD key events today

• The US CB Consumer Confidence report

USD/CAD technical price analysis: New low signals exhaustion in the market

USD/CAD 4-hour chart

On the charts, USD/CAD has made a new low below the 1.3301 level, showing the downtrend has progressed. The price is far below the 30-SMA, further supporting bears. However, although the RSI is below 50, showing solid bearish momentum, it has made a bullish divergence. This means that the new low is weaker, and bears are exhausted. 

Therefore, bulls might get a chance to retrace the recent decline. Still, since the pullback might come amid a downtrend, it will likely pause at the 30-SMA resistance. The trend can only reverse if bulls are strong enough to break above the SMA.

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