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USD/CAD Reverses Ahead of 2022 High with Fed Rate Decision on Tap

Article By: ,  Strategist
November 4, 2024 9:20 PM

US Dollar Forecast: USD/CAD

USD/CAD appears to be reversing ahead of the 2022 high (1.3978) as the Relative Strength Index (RSI) falls back from overbought territory, and the Federal Reserve interest rate decision may drag on the exchange rate as the central bank is expected to deliver a 25bp rate cut.

USD/CAD Reverses Ahead of 2022 High with Fed Rate Decision on Tap

USD/CAD pulls back from a fresh yearly high (1.3959) after showing a limited reaction to the US Non-Farm Payrolls (NFP) report, and the move below 70 in the oscillatory is likely to be accompanied by a further decline in the exchange rate like the price action from earlier this year.

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In turn, the opening range for November is in focus as USD/CAD comes under pressure going into the US election, and it remains to be seen if the upcoming change to fiscal policy will influence the Federal Open Market Committee (FOMC) as the central bank moves towards a neutral stance.

US Economic Calendar

The FOMC is anticipated to lower interest rates for the second consecutive meeting as Chairman Jerome Powell and Co. project that ‘the appropriate level of the federal funds rate will be 4.4 percent at the end of this year,’ and the central bank may continue to prepare US households and businesses for a less restrictive policy in an effort to avoid a recession.

With that said, the advance from the October low (1.3473) may continue to unravel as the recent decline in USD/CAD pulls the RSI back from overbought territory, but the exchange rate may stage further attempts to test the 2022 high (1.3978) if the FOMC delivers a hawkish rate-cut.

USD/CAD Price Chart – Daily

Chart Prepared by David Song, Strategist; USD/CAD Price on TradingView

  • Keep in mind, USD/CAD cleared the August high (1.3947) as it marked a five-week rally for the first time since January, but the exchange rate initiates a series of lower highs and lows as it struggles to test the 2022 high (1.3978).
  • A break/close below the 1.3810 (161.8% Fibonacci extension) to 1.3850 (50% Fibonacci extension) zone may push USD/CAD back towards 1.3700 (38.2% Fibonacci extension), with the next area of interest coming in around 1.3630 (38.2% Fibonacci retracement).
  • Nevertheless, lack of momentum to close below 1.3900 (50% Fibonacci extension) may lead to further attempts to test the 2022 high (1.3978), with a break/close above the 1.3970 (61.8% Fibonacci extension) to 1.4000 (61.8% Fibonacci extension) region opening up the 1.4040 (23.6% Fibonacci retracement) to 1.4080 (78.6^ Fibonacci extension) area.

Additional Market Outlooks

Monetary vs Fiscal Policy: Implications for FX Markets

Euro Forecast: EUR/USD Recovery Persists Ahead of Euro Area CPI Report

British Pound Outlook: GBP/USD Recovery Emerges Ahead of UK Budget

USD/JPY Forecast: RSI Continues to Flirt with Overbought Zone

--- Written by David Song, Senior Strategist

Follow on Twitter at @DavidJSong

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