The Canadian dollar reached a 5-week high following the release of the US consumer inflation report. In contrast, the US retail sales report showed a significant drop from 0.7% to 0.0%. Canadian home sales also fell by 1.7% in April.
The USD/CAD forecast suggests a bearish outlook as the dollar remains near recent lows due to a disappointing inflation report. The Canadian dollar, which had rallied alongside US equities, has since slightly retreated.
On Wednesday, the Canadian dollar surged to a 5-week high after the US consumer inflation report was released. The data indicated a lower-than-expected figure for April, leading to speculation that the Federal Reserve may cut rates in September. The CPI rose by 0.3% in April and 3.4% annually, signaling a decline from previous months and reinforcing the belief that inflation is on a downward trend.
Simultaneously, the US retail sales report revealed a significant drop from 0.7% to 0.0%, indicating a slowing economy due to high interest rates. This added pressure on the Fed to determine the timing of the first rate cut, increasing expectations for a rate cut and weighing on the dollar. The Canadian dollar, which tracks Wall Street, saw a boost as investors reacted positively to the disappointing reports.
In addition, data from Canada showed a 1.7% decline in home sales in April. While the Canadian dollar benefited from the weakening dollar, investors acknowledged the deterioration of Canada’s economy. As a result, the Bank of Canada is likely to implement its first rate cut before the Fed.
Technically, the USD/CAD price has broken below a significant support level of 1.3650, indicating a bearish bias. The price is trading below the 30-SMA, and the RSI is in bearish territory below 50. Bulls may trigger a retest of the level before further downtrend. The price could also retest the 30-SMA resistance line, with a high likelihood of falling towards the 1.3551 support level.