USD/CAD Hits Fresh 5-Month Lows As DXY Keeps Tanking
USD/CAD is set to close the second consecutive red month as the Canadian dollar continues to outperform the greenback. The US dollar to Canadian dollar exchange rate has been trading at its lowest level since early August due to falling bond yields and the weakening USD.
On Wednesday, USDCAD showed minor gains of 0.04% during its London session. This bounce comes as the forex pair is trading within a strong demand zone. While there could be a bigger short term bounce in the coming days, the broader outlook remains in favor of CAD.
Analysts are expecting the Bank of Canada to start cutting rates in early 2024 due to the sluggish growth in the economy. The country’s economy remained unchanged in October 2023 and the November growth forecast hasn’t been encouraging either.
These macroeconomic conditions are fuelling the ongoing downtrend in USD/CAD. Another factor contributing to this price action is the falling DXY index which tracks the strength of the US dollar against six major currencies.
The chart below shows that the USD/CAD forecast turned bearish earlier this month when it faced rejection from the downward trendline. Since then, the forex pair has slid more than 3%. However, the 4H RSI is showing some bullish divergence due to the demand below the 1.32 level. This may result in a short term bounce.