USD/CAD: On the Cusp of a Bullish Breakout to 1.3800

The forex market will be in a relatively calm mood this week as investors focus on the recent central bank events. The USD/CAD price pulled back on Monday and was trading at 1.3660, slightly lower than this month’s high of 1.3705. This price is about 3.27% above the lowest level in November this year. It has moved close to the highest level since November 4.

BoC to hit a strategic pause soon

The Bank of Canada concluded its final meeting last week and did what most analysts were expecting. It decided to hike the prime interest rate by 0.50%, bringing the country’s interest rate to 4%. The bank also continued with its quantitative tightening policy, which is reducing the size of its balance sheet. 

In its statement, the BoC said that the council will deliberate on whether to continue its interest rate hikes to bring supply and demand back into check. The BoC’s interest rates are notable because Canada has some of the highest household debt in the world. It has a debt-to-income ratio of 181.7%, meaning that any rate hike is leading to more trouble for residents. The rate averaged 131.74% from 1990 to 2022.

Therefore, analysts expect that the Bank’s hiking cycle will end soon as it embraces a strategic pause. Besides, inflation has started moving downwards.

USD/CAD latest news: Fed decision

Meanwhile, the USD/CAD price reacted to the latest hawkish Federal Reserve decision. In it, the central bank decided to hike rates by 0.50%. In its accompanying statement, the bank warned that its fight against inflation was still on.

As a result, the Fed said that it will likely hike interest rates by another 0.75% in the first quarter of the year. This could include a 0.50% hike in February followed by 0.25% hike in March.

The next key catalyst for the USD to CAD exchange rate will be the upcoming US consumer confidence data. Economists expect the data to show that confidence rose slightly in December as inflation expectations improved.

USD/CAD forecast and signal

The 4H chart shows that the USDCAD exchange rate has been in a slow upward trend in the past few days. In this period, it has moved slightly above the ascending trendline that connects the lowest levels since November. It has moved slightly below the upper side of the triangle pattern while the Relative Strength Index (RSI) has moved slightly below 60.

Therefore, the outlook of the USD to Canadian exchange rate is bullish, with the next key level to watch being at 1.3800. This view will be confirmed if it moves above the key resistance point at 1.3700. A drop below the support at 1.3600 will invalidate the bullish view.