USD/CAD. Analysis and Forecast

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The USD/CAD pair has been attracting buyers for the fifth consecutive day amid contrasting forecasts from the Bank of Canada and the Federal Reserve.

The pair continues its upward movement for the fifth day in a row, marking the seventh positive session over the past eight days. The Canadian dollar remains under pressure amid expectations of further rate cuts by the Bank of Canada. On Tuesday, Bank of Canada Governor Tiff Macklem stated that the central bank intends to support economic growth while keeping inflation under control. This undermines the Canadian dollar.

The Bank of Canada's dovish stance contrasts sharply with the cautious comments from Federal Reserve Chair Jerome Powell. Last week, Powell noted that rate cuts are part of risk management measures but do not imply rapid reductions, as inflation risks remain tilted to the upside. Earlier this week, the Fed Chair also warned that overly aggressive monetary easing could leave the fight against inflation incomplete, requiring a policy shift.

Optimistic U.S. macroeconomic data released on Thursday added to the uncertainty regarding the pace of Fed rate cuts, pushing the dollar to a three-week high and supporting USD/CAD. The third estimate of U.S. GDP showed annual growth of 3.8% in the second quarter, exceeding the previously reported 3.3% and marking a recovery after a 0.5% contraction in the first quarter.

In addition, durable goods orders in August rose 2.9%, offsetting a revised 2.7% decline in July and beating market expectations of a 0.5% drop. Initial jobless claims for the week ending September 20 fell to 218,000, below the revised 232,000 from the previous week.

The strong economic indicators highlight the resilience of the economy amid trade tariffs and moderate expectations of more aggressive Fed easing. Nevertheless, traders still price in the likelihood of further Fed rate cuts in October and December. This has led to profit-taking on the dollar ahead of the release of the key Personal Consumption Expenditures (PCE) price index, scheduled for the North American session on Friday.

Additionally, Canada's monthly GDP report for July, expected to show 0.1% growth, may provide some momentum for the USD/CAD pair. From a technical perspective, daily chart oscillators remain positive, with the pair attempting to break through resistance at 1.3950 on the way to the key 1.4000 level, where the important 200-day simple moving average (SMA) lies. If a pullback occurs, it will likely be limited by the 1.3900 level, below which the next support is seen at yesterday's low of 1.3850. If this level fails to hold, prices could fall further toward the next support at 1.3850, heading to the 1.3800 level.

The material has been provided by InstaForex Company - www.instaforex.com