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Which way will USD/CAD go after tonight?
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Hello everyone, today XM Foreign Exchange will bring you "[XM Foreign Exchange]: Which way will the US dollar/Canadian dollar go after tonight?". Hope this helps you! The original content is as follows:
On Tuesday (October 21), the exchange rate of the US dollar against the Canadian dollar continued to strengthen during the European session, with intraday trading close to 1.4050. The market is focusing on Canadian inflation and the outlook for the Bank of Canada's October interest rate meeting announced at 20:30 tonight. Coupled with the continued decline of crude oil and fiscal uncertainty in North America, short-term volatility is in the "strong trend-data sensitive" stage where it is easy to rise but difficult to fall.
Fundamentals
The Bank of Canada's recently released business climate survey shows that the business environment perceived by xmaccount.companies has improved slightly from the beginning of the year, but due to the constraints of tariffs, they remain cautious about capital expenditures and employment intentions; the survey also shows that inflation expectations are generally under control. This xmaccount.combination strengthens the market's bets on another interest rate cut in October. The implied probability of interest rate derivatives shows that the probability of a small 25 basis point interest rate cut in October is "close to 77%"; after Governor McCollum's dovish statement last week, another group of market pricing increased from 68% to 86%. What both calibers have in xmaccount.common is that interest rate cuts are still the baseline scenario. Last month, the Bank of Canada lowered its policy interest rate to a three-year low of 2.50%. If it continues to be lowered, it will further xmaccount.compress the support of the Canadian dollar's interest rate differential, giving the U.S. dollar against the Canadian dollar a tailwind of "trading the difference."
In terms of xmaccount.commodities, crude oil fell to a five-month low. As a currency that is highly correlated with energy, the Canadian dollar tends to weaken passively during periods of falling oil prices. Especially under the framework of Canada as the main crude oil supplier in North America, the downward pressure on the country's nominal exports and nominal income due to falling oil prices is often reflected in exchange rate risks through the channels of current account and fiscal expectations.At a premium. The xmaccount.combination of weak oil prices and expectations of interest rate cuts has become an important driver for the exchange rate to approach 1.41.
In terms of data outlook, the market is focusing on tonight’s Canadian CPI: 2.3% year-on-year (previous value 1.9%) and 0.0% month-on-month (previous value -0.1%) are regarded as the baseline; the core CPI revised average is 3.0% year-on-year (previous value 3.0%), which has roughly fluctuated around the 3% level since February 2025. xmaccount.combined with the recent strong Canadian employment data, if inflation rises more than expected, the market may carry out "short-term hawkish re-pricing", which will strengthen the Canadian dollar in a phased manner and suppress the exchange rate; if inflation is moderate or falls, it will consolidate the baseline of interest rate cuts and benefit the exchange rate.
On the dollar side, the federal government shutdown has entered its fourth week and the Senate once again failed to pass an appropriation bill (the 11th setback). In the short and medium term, expectations for U.S. growth and dollar risk appetite may be dragged down. The impact of this factor on the U.S. dollar is likely to vary non-linearly with "duration - financial conditions - data feedback": if the shutdown drags on for a long time and spills over to high-frequency growth indicators, the U.S. dollar may be suppressed; if the fiscal game is about to be resolved, a short-term rebound of the U.S. dollar is not impossible. Overall, the uncertainty of the US dollar's fundamentals makes the Canadian CPI's dominance over the main logic of the market more prominent tonight.
Technical aspect:
From the daily chart, the upper track of Bollinger Bands is 1.4127/the middle track is 1.3936/the lower track is 1.3746. Recently, the K-line has continuously closed above the middle track and has run close to the upper track many times, reflecting the characteristics of "moving close to the upper track" in the ascending channel, corresponding to the volume and price structure dominated by trend buying. 1.4079 above is the high point of the near-end stage. If the heavy volume effectively breaks through, the opening of the Bollinger Bands is expected to expand moderately, and the price will form a "dynamic resistance test" towards 1.4127 near the upper track; if it rises and falls back, it will easily form a backtest-re-direction rhythm near the middle track 1.3936. The static support below refers to the previous structural level of 1.3860, and further below is the resonance area between the Bollinger lower rail and the swing low point of 1.3746/1.3725.
MACD(26,12,9) is in the slightly positive range of DIFF0.0054, DEA0.0052, and the bar value is about 0.0006, showing that the momentum is positive but the diffusion is limited. If the subsequent price reaches a new high and the histogram does not enlarge simultaneously, you need to be alert to the risk of top divergence. RSI (14) is 67.4209, which is close to the overbought threshold of 70. If it continues to reach the top along the upper track in the short term, a mean reversion-style technical retracement may be triggered at any time. The overall technical structure is summarized as follows: the mid-term upward trend continues, and the short-term momentum is slightly tight. The key lies in the breakthrough quality of 1.4079 and the success or failure of the backtest of 1.3936.
Market Sentiment Observation
Option pricing and disk behavior show that the market is more inclined to regard "BoC interest rate cut + weak oil prices" as the main line. However, before the CPI falls, sentiment shows a typical configuration of bullishness and cautious data:
Bull market sentiment: prices climb close to the upper track, trend trading and momentumThe strategy favors "testing long positions on retracements", which causes the retracement depth in the upward process to be frequently "cut off by buying orders".
Short market sentiment: RSI is approaching the overbought threshold, and the momentum of the MACD column has not expanded significantly, making counter-trend strategies more willing to look for false breakthroughs and divergence clues near the previous high.
Consensus and disagreement: The probability of the Bank of Canada cutting interest rates in October is not entirely consistent (two estimates of close to 77% and an increase to 86% exist at the same time), which makes "repricing after the data is released" a potential volatility amplifier. If Canada's CPI is on the hot side, short covering of the US dollar against the Canadian dollar may occur; if Canada's CPI is on the cold side, bulls may follow the trend and push the exchange rate to launch a more powerful impact on the 1.4079-1.4127 range.
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