USD/CAD Forecast: CAD Comeback Continues, Inflation And Oil Eyed

• USD/CAD fell on the weakness of the greenback, fueled by the Fed.
• Inflation data stands out as oil stabilizes. 
• The technical picture is bearish for the pair. The FX Poll shows a mixed picture.

This was the week: BOC maintains the hawkish bias

The Bank of Canada decided to leave the interest rate unchanged at 1.75% as broadly expected. In the accompanying statement and press conference, the Ottawa-based institution conveyed a message of patience but also of optimism. 2018 was an "off year" due to NAFTA uncertainty and the fall in oil prices, but employment looks strong. The BOC is still expected to raise rates later this year. The loonie reacted positively to the news.

Canadian data was mixed with a beat in the Ivey PMI and Housing Starts but a miss on trade data. 

In the US, the Fed had its message of patience, via the FOMC Meeting Minutes. Also, FOMC member Raphael Bostic went further and opened the door to a rate cut. Other officials also voiced more dovish thoughts than beforehand. The US Dollar lost ground across the board.

The C$ also enjoyed the ongoing recovery in oil prices. The Fed-inspired recovery in stocks prices also pushed petrol prices higher. Also, the supply-demand pendulum is more balanced. 

Canadian events: Inflation awaits on Friday, watch oil

The ADP Non-Farm Payrolls report on Thursday will shed more light on the Canadian labor market, but the focus is on Friday's inflation report. Headline, Consumer Price Index, stood at 1.7% YoY in November, off the highs as energy prices slipped. Core CPI saw smaller moves and stood at 1.5% in the previous month.

The BOC watches the data carefully. The report is not published alongside the retail sales one, giving inflation data its time in the spotlight. 

Here is the Canadian calendar for this week:

US events: Retail sales stand out 

After a US holiday on Monday, the Producer Price Index stands out on Tuesday, with no major changes expected. The economic highlight of the week is on Wednesday with Retail Sales. After the Control Group jumped by 0.9% in November, the month including Black Friday, December's sales will be of interest. Did Americans continue shopping big-time around Christmas?

The second significant highlight is the preliminary Consumer Sentiment Index by the University of Michigan. The indicator is just below the cycle highs and stood at 98.3 points in December. We may see a drop now.

US politics may play a more substantial role in markets. The longer the government shutdown continues, the higher the economic damage. Some employees will not receive paychecks, and this could be damaging for the economy. Headlines from Washington may have an impact on the US Dollar. 

Here are the critical American events from the forex calendar: 

USD/CAD Technical Analysis

Dollar/CAD continues its downtrend after breaking below the long-term uptrend support line. It lost the 50-day Simple Moving Average and suffers from downward Momentum. All in all, the picture is bearish.

1.3185 was the low point earlier in the week. It is followed by 1.3160 that provided support in early December and the next line is close by 1.3135 that cushioned the pair in early November. Further down, 1.3050 was a low point in November. A bit further down the road, 1.3050 provided support twice in November. 1.2960 was a swing high in October and so was 1.2920.

1.3250 capped the pair in recent days and was also a swing low in early December. 1.3320 provided support in mid-December and is closely followed by 1.3360 which was a peak in late November. 1.3420 was a swing low during the dying days of 2018. 1.3570 provided support to $/CAD when it traded on high ground.

USD/CAD Sentiment

While oil prices may have run their course, the ongoing hawkish bias by the BOC contrasts the concerted effort to appease markets by the Fed. USD/CAD has room to the downside. 

The FXStreet forex poll of experts shows a bearish short-term trend, a bullish one in the medium term and a significant fall afterward. All in all, a mixed picture. Forecasts have been slightly downgraded for all timeframes.