The USD/CAD exchange rate held steady and reached its highest level since April 11. It was trading at 1.4060, up by 3.87% from its lowest point this year as focus now shifts to the Canadian and US inflation data and Bank of Canada (BoC) and Fed decisions.

Canada inflation data and BoC decision

The USD/CAD exchange rate rose slightly this week as investors focused on the upcoming macro event from the United States and Canada.

The first main event will come out on Wednesday when the Canadian statistics agency publishes the latest inflation report. 

Economists polled by Reuters expect the data to show that the headline Consumer Price Index (CPI) rose from 1.9% in August to 2.3% in September. They see the data coming in at minus 0.1% on a MoM basis.

Core inflation, which excludes the volatile food and energy prices, is expected to come in at 2.7%, an increase from the previous 2.6%.

The closely-watched mean CPI and trimmed mean CPI are expected to come in at 3%. If these estimates are accurate, they will mean that Canada’s inflation is moving in the wrong direction, which will put more pressure on the central bank.

The BoC will start its meeting on Tuesday next week and deliver its decision on the following day. A higher inflation figure than expected will make it difficult for the central bank to cut interest rates in the coming meeting.

Besides, the bank has already slashed them from last year’s high of 5% to 2.75% today. It has done this by cutting interest rates at least six times since last year.

Still, the BoC may cut interest rates because of the rising unemployment rate. Data shows that the jobless rate in the country rose to 7.1% in September, up from the year-to-date low of 6.6%.

A report released earlier this month showed that the Canadian economy added 65,500 jobs in September after shedding over 100,000 in the previous two months. Also, a recent report showed that factory activity slowed in October.

US inflation and Fed decision 

The next key catalyst for the USD/CAD exchange rate will be the upcoming US inflation report. Scheduled on Friday, the report by the Bureau of Labor Statistics is expected to show that inflation is still a major issue. 

Economists polled by Reuters expect the numbers to show that the headline Consumer Price Index rose from 2.9% in August to 3.1% in September. Core inflation, which excludes the volatile food and energy products, is expected to come in at 3.1%.

The inflation report comes a week before the Federal Reserve meets and delivers its second-to-last interest rate decision for the year. Economists expect the bank to cut rates by 0.25% because of the labor market.

The USD to CAD exchange rate will also react to the upcoming US talks with China. A deal will be a bullish one for the US and the greenback.

USD/CAD technical analysis

USD/CAD chart | Source: TradingView

The daily chart shows that the USD/CAD exchange rate has rebounded in the past few months. It has jumped from a low of 1.3540 in June to 1.4060, its highest point since April. 

The pair has moved above the important resistance level at 1.4010, its highest point in May. It has also formed a golden cross pattern as the 50-day and 200-day Exponential Moving Averages (EMA) crossed each other. 

The Relative Strength Index (RSI) and the MACD have continued rising. Therefore, the pair will likely continue rising as bulls target the key resistance at 1.4156, its lowest point in February.

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