USD/CAD Price Forecast: Trades cautiously ahead of US PCE inflation, Canadian GDP

• USD/CAD exhibits caution below 1.3500 ahead of US and Canada data.
• Economists estimate the Canadian economy to have grown by 0.1% in July.
• The US PCE inflation will influence market expectation for Fed's interest rate outlook.

The USD/CAD pair trades with caution below the psychological resistance of 1.3500 in Friday's European session. The Loonie asset is marginally higher despite a slight decline in the US Dollar (USD), suggesting a weakness in the Canadian Dollar (CAD) ahead of the monthly Gross Domestic Product (GDP) data for July, which will be published at 12:30 GMT.

The Canadian economy is estimated to have barely grown after remaining flat in June. The Bank of Canada (BoC) is already expected to extend its policy-easing cycle due to decelerating inflation trend and weakening labor market conditions.

At the same time, the major release will be the United States (US) Personal Consumption Expenditure price index (PCE) data for August. The core PCE inflation, a Federal Reserve's (Fed) preferred inflation gauge, is estimated to have grown by 2.7%, faster than 2.6% in July year-on-year.

The underlying inflation data will significantly influence the Fed's interest rate outlook for the last quarter of the year. Financial market participants expect the Fed to reduce interest rates further by 75 bps, collectively in the remaining two policy meetings.

USD/CAD trades at make or a break above the immediate support of 1.3400. The major formed a fresh swing low near 1.3400 on a daily timeframe, suggesting a bearish trend. A bear cross, represented by the 20 and 50-day Exponential Moving Averages (EMAs) near 1.3600, indicates more downside ahead.

The 14-day Relative Strength Index delivers a range shift move into the 20.00-60.00 territory from 40.00-80.00, which suggests that pullbacks would be considered as selling opportunities by investors.

Going forward, a further correction by the major below the immediate support of 1.3400 would expose it to the January 31 low of 1.3360 and a June 9 low of 1.3340.

In an alternate scenario, a recovery move above the psychological support of 1.3500 would drive the asset towards the April 5 low of 1.3540, followed by the September 20 high of 1.3590.

USD/CAD daily chart