Strong dollar supports USDCAD growth amid soft monetary policy of the Bank of Canada

The USDCAD currency pair consolidated near a multi-month high amid investors’ expectations of further steps by the US and Canada on monetary policy. The US dollar is showing strong growth, helped by Donald Trump’s electoral advantage, which increases the chances for maintaining tight monetary policy.

Trump’s possible return to the presidency could keep US interest rates high amid his plans to cut taxes and impose import tariffs. This increases inflationary pressures and boosts Treasury bond yields, making the dollar attractive to investors. As a result, the US currency is strengthening against six major currencies, including the Canadian dollar.

Investors are also awaiting the conclusion of the Fed‘s two-day monetary policy meeting. Markets speculate that the Fed may announce a quarter percentage point rate cut.

As the minutes of the Bank of Canada meeting showed, the regulator is considering cutting interest rates to stimulate domestic demand. With inflationary pressures easing and population growth slowing, the bank is planning policy easing to support consumer activity and curb the decline in growth.

The divergence in the approaches of the Fed and the Bank of Canada may strengthen USDCAD as high yields on US assets remain attractive for investors. At the same time, the Canadian central bank is leaning towards a soft monetary policy.

From a technical point of view, the USDCAD currency pair is forming a broad upward trend on the D1 timeframe. The Bulls Power is in the positive zone, which confirms the formation of a buy-side movement.

Signal:

The short-term outlook for the USDCAD is to buy.

The target is near the level of 1.4080.

Part of the profit should be fixed near the level of 1.3960.

The Stop loss could be placed near the level of 1.3690.

The bullish trend is of a short-term nature, so it is suggested to limit the trading volume to no more than 2% of your capital.