US Dollar To Canadian Dollar Rate Outlook: USD/CAD Jumps Higher, GDP Remains Key Risk

Published: 20 Oct 2017 21:24 Forex

Us dollar to canadian dollar exchange rate forecast

The US Dollar to Canadian Dollar (USD/CAD) exchange rate improved on recent best conversion levels after data missed market predictions

At time of writing the US dollar to Canadian dollar exchange rate is trading 0.2 per cent higher at 1.31778 on today's foreign exchange markets.

Though neighbors, the US and the Canadian economies are on very divergent paths.

While the experts expect the US Federal Reserve to hike rates as early as December, a slew of weak data in Canada is prompting the experts to believe that the next rate action by the Bank of Canada will be a rate cut instead of a rate hike.

Latest Pound / Euro Exchange Rates

On Friday the US Dollar to British Pound exchange rate (USD/GBP) converts at 0.793

The pound conversion rate (against us dollar) is quoted at 1.261 USD/GBP.

At time of writing the pound to pound exchange rate is quoted at 1.

FX markets see the pound vs swiss franc exchange rate converting at 1.137.

Please note: the FX rates above, updated 29th Mar 2024, will have a commission applied by your typical high street bank. Currency brokers specialise in these type of foreign currency transactions and can save you up to 5% on international payments compared to the banks.

Weak inflation puts pressure on the central bank to act

The annual inflation rate in August was down to 1.1%, a 10-month low, missing analysts’ forecasts of an increase of 1.4%.

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For the past seven months, inflation has remained well below the Bank of Canada’s 2.0% target.

The core inflation figures fell to 1.8% from 2.1%, which is the lowest level in two years.

Earlier in the month, the central bank had warned that the risks to the profile for inflation was to the downside in recent months.

“The Bank of Canada flagging inflation risks was significant and the markets should factor in a greater chance still of a rate ease,” said Shaun Osborne, chief foreign-exchange strategist at Bank of Nova Scotia in Toronto. He sees risks for the Canadian dollar “skewed to the topside” toward C$1.33 to C$1.35 per U.S. dollar, reports Bloomberg.

Canadian retail sales also disappoint

The value of retail sales in July fell 0.1% against an increase of 0.1% forecast by the economists.

The main contributor was reduced spending at the gas stations, which saw a 3% slide in gasoline sales.

However, the volume of sales increased 0.3%, which shows that the value was affected more due to weak gas prices.

“The volume gain should be enough to keep us on track for decent monthly gain in July GDP,” said Nick Exarhos, economist at CIBC Capital Markets, reports The Wall Street Journal.

Expectations of a rate cut jump post the weak data

The analysts expect the third quarter GDP numbers to show a sharp jump, after the second quarter numbers shrank, affected mainly by the Alberta wildfires.

Notwithstanding, the recent economic data have been weak, prompting experts to factor in a rate cut next year. Before the release of the data on Friday, the implied probability of a rate cut by the Bank of Canada was 20%, however, the expectations increased to 40% post the release of data, according to overnight index swaps data, reports Reuters.

Crude oil prices also a dampener

Crude oil prices continue to languish below the $50 a barrel mark and hopes are pinned on the Algiers meeting next week to support oil prices. However, only a handful of experts are hopeful of any deal between Saudi Arabia and Iran.

Others believe that the meeting will end without any agreement.

Without a deal, oil is likely to oscillate between $40 to $50 a barrel mark.

Will the USD/CAD exchange rate breakout of its range?

USD/CAD chart

The USD/CAD, which was on the verge of a breakout from the range, pulled back following the Fed policy announcement. However, the bulls quickly bought the dips and have again pushed the pair close to the overhead resistance levels of 1.316 levels.

The news on oil is likely to keep the pair volatile during the whole week. We can expect the pair to breakout of the resistance level next week, and move towards the upper target of 1.355.

On the other hand, if the pair again faces resistance at the 1.319 levels, it will continue its range bound movement.

Traders should look to form long positions on any weakness.

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