USDCAD Breaks Resistance on Higher Neutral FED Rate Rhetoric, But Fails at 1.40

USDCAD finally broke the resistance at 13960s today after several attempts, but buyers stalled at the 1.40 round level, with the price pulling back 30 pips. However, the bullish break is inevitable, as FED members mention higher neutral rate, keeping the demand for the US elevated.

Since late September, USD/CAD has gained more than 5 cents, though this upward trend slowed in November as the pair entered a consolidation phase, which might have ended today after the 50 pip jump. The pair has struggled to push past key resistance levels, facing consistent rejections around 1.3950-60, however the break came today, but buyers were unable to breach the significant 1.40 mark, highlighting a slowdown in momentum.

USD/CAD Chart H4 – The Resistance at 1.3960s Has Been Broken

After the recent US CPI report, the US dollar strengthened, breaking multiple resistance levels while the euro reached its lowest point in a year. October’s core CPI rose from 2.6% to 3.3% year-over-year, and headline CPI increased from 2.4% to 2.6%. Experts suggest that rising housing costs are driving much of the core inflation, with rental components contributing significantly to the yearly core price increases. However, inflation pressures are now more widely distributed across non-housing components as well.

Comments from Federal Reserve officials Kashkari and Logan showed cautious optimism, with both suggesting confidence in the progress made. Logan noted that current models suggest rates may be nearing a neutral point, though she advised proceeding carefully. This suggests another 25 bps rate cut in next month’s meeting, in line with market expectations then we might see a pause and a slower pace of rate cut.

Comments from the Dallas Fed President Logan

• • Models suggest Fed funds rate may be “very close” to neutral.
  • Additional rate cuts are likely needed but should be approached cautiously.
• Risks of policy adjustments:
  • Cutting rates too far below neutral could risk re-accelerating inflation.
  • Uncertainty around how many cuts might be needed or when they should occur.
• Inflation and economic progress:
  • Fed has made significant progress in reducing inflation but hasn’t fully achieved price stability.
  • Economic activity in the US remains resilient.
• Labor market insights:
  • Labor market is cooling at a gradual pace but not experiencing significant weakening.
• Balancing inflation and employment risks:
  • Sees upward risk to inflation and downward risk to employment.
  • Financial conditions, including rising bond yields, may create significant challenges for policy decisions.
• Impact of bond yields on policy:
  • If bond yields continue climbing, the Fed may require a less restrictive stance on monetary policy.

USD/CAD Live Chart