Outlook USD/CAD: Pair rises ahead of US employment data

• The dollar was higher on Thursday after weak trading in the previous session.

• The Fed has remained somewhat hawkish despite the recent change in economic data.

• API data revealed an increase in crude inventory.

The USD/CAD outlook is bearish, but the pair has rallied slightly ahead of US employment and business activity data, which could provide insight into the outlook for rate cuts. Meanwhile, the Canadian dollar retreated slightly with oil amid signs of weak fuel demand.

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The dollar rose on Thursday after weak trading in the previous session due to the US holiday. Apart from soft retail sales data, it has been a quiet week in the US, with investors now looking forward to jobless claims and PMI data.

In particular, there is more clarity on the US economy and monetary policy. Investors are more confident that the economy is heading south and inflation is cooling. The first quarter retail sales report and GDP were some indicators of weaker economic demand. Meanwhile, the indices of consumer and production prices have recorded a decline in price growth. Consequently, the chances of a rate cut in September have increased.

However, the confusion is that the Fed has remained somewhat hawkish despite the recent change in economic data. Policymakers are likely to exercise more caution this time around in case the economy surprises again and returns to growth like it did earlier in the year. As a result, they have predicted only one rate cut this year. However, this may vary depending on the input data.

Meanwhile, the Canadian dollar was almost flat after a recent rally amid a surge in oil prices. However, oil retreated slightly after API data revealed a rise in crude inventories.

Key USD/CAD events today

USD/CAD Technical Outlook: Bears should confirm retracement below 1.3700

Technically, the USD/CAD price has broken below its bullish line, as it has shown signs of an imminent reversal. Additionally, it is trading below the 30-SMA with the RSI in bearish territory below 50. This new bias came after the price made a bearish candle just above the SMA. This was a sign that the bears had gained momentum and sentiment had changed. Consequently, the price broke below its uptrend line.

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However, the decline has stopped at the key level of 1.3700. This could lead to a retest of the recently broken trend line before the downtrend continues. Bears will confirm a new direction when the price drops below 1.3700.

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