The US Dollar (USD) appreciated for the fourth consecutive day against the Canadian Dollar (CAD) on Monday, driven by increasing market expectations of a Federal Reserve (Fed) rate hike scheduled for Wednesday. This upward momentum in the USD offset the typically positive influence of higher oil prices on the CAD, pushing the USD/CAD pair above the 1.3870 resistance level. Bulls are now targeting the monthly high at 1.3940, with potential for further gains toward the 78.6% Fibonacci retracement of the August selloff at the 1.4050 area [1].
Analysts at ING commented that a Fed rate hike would reinforce the central bank's monetary policy credibility and reduce pressure from the 'debasement trade,' a theme that has evolved due to doubts over Fed independence and recent US Treasury interventions [1]. On the Canadian side, market attention is focused on August's Consumer Price Index (CPI) data, which is expected to have stalled after a 0.5% increase in July. The Bank of Canada (BoC) CPI is anticipated to grow at a steady 0.2% pace, unchanged from the previous month. These figures are not expected to prompt the BoC to raise interest rates, and unless there is an inflationary surprise, they are unlikely to support a CAD recovery [1].
Technical analysis indicates that USD/CAD is trading at 1.3893, above the recent trading range, with momentum indicators such as the Relative Strength Index (RSI) rising above the key 50 level and the MACD histogram suggesting improving bullish momentum. However, a bearish move below 1.3870 could find support at 1.3835, with a break below the September 9 low at 1.3766 negating the bullish outlook [1].
In terms of broader currency performance, the US Dollar was the strongest against the New Zealand Dollar, gaining 0.75%, and rose 0.17% against the Canadian Dollar on the day [1].
CONCLUSION
The US Dollar's sustained rally against the Canadian Dollar is being fueled by expectations of a Fed rate hike, while Canadian inflation data is not expected to alter the Bank of Canada's policy stance. Technical and market indicators point to continued USD strength unless key support levels are breached. Market participants are closely watching upcoming US and Canadian economic data for further direction.