The downside potential for the USD/CAD currency pair may be limited. Minutes from the Bank of Canada's meeting on Wednesday revealed that the Governing Council chose to disregard volatile annual inflation data ahead of the October 29th interest rate decision, instead focusing on underlying inflation indicators to better gauge the overall inflation trend. This approach is believed to provide a more reliable signal. At its last meeting, the central bank lowered its key policy rate by 25 basis points to 2.25%, signaling that this might be the final rate cut for the near term, as monetary policy support for the economy is approaching its limit. Committee members acknowledged that the impact of the government's sales tax cuts and the removal of the consumer carbon tax last year would cause temporary fluctuations in year-over-year inflation changes, hence the focus on underlying indicators. In September 2024, the annual inflation rate rose to 2.4%, primarily due to a smaller year-over-year decline in gasoline prices. The central bank expects inflation to remain around 2% over the next two years, at the midpoint of its 1% to 3% target range. The current interest rate is already at the lower bound of the neutral range and has a stimulating effect on economic growth. The Governing Council unanimously agreed that monetary policy support has nearly reached its maximum limit. Governor Tiff Macklem stated that further measures would be taken if the economy shows significant weakness. Although there were differing views on the timing of the rate cut, the October reduction was well justified given factors such as excess supply, a weak labor market, sluggish economic growth in the second half of the year, and stable inflation expectations. Committee members also expressed concern that labor market weakness could persist or even widen, linked to U.S. tariff policies, trade uncertainties, and immigration restrictions that are slowing population growth and reducing the number of new jobs needed to maintain employment levels. 

With the end of the U.S. government shutdown, market sentiment has improved, which may lead to further strengthening of the U.S. dollar, potentially boosting the USD/CAD pair. Reuters reported that U.S. President Donald Trump signed a government funding bill on Thursday, officially ending the longest government shutdown in U.S. history. The bill mandates the restoration of government operations and calls for direct payments for healthcare to individuals. Additionally, the U.S. dollar may find support from hawkish remarks by Federal Reserve officials, which have reduced the likelihood of a December rate cut. The CME FedWatch Tool shows that market expectations for a 25-basis-point rate cut in December have dropped to nearly 60%, down from 67% the previous day. Raphael Bostic, President of the Federal Reserve Bank of Atlanta, spoke on economic trends at the Atlanta Economics Club on Wednesday. Bostic warned that easing monetary policy too early could feed the 'inflation beast'. He also noted that a sharp downturn in the labor market is unlikely in the near term. 

Based on the daily chart, the Bollinger Bands are narrowing, with the short-term EMA12 flattening. The price is oscillating near the Bollinger Middle Band, and the MACD uptrend momentum has weakened, with the MACD and the signal lines pulling back toward the zero axis again. There is a high probability that the price will stabilize near the EMA50, around 1.397. The RSI value is at 50, indicating a market in a wait-and-see state, awaiting a directional breakout. Regarding the 4-hour chart, the Bollinger Bands are also narrowing. The MACD has formed a golden cross below the zero axis, and the price has stabilized and rebounded near the EMA200. There is a high likelihood of further upward movement toward the Bollinger Middle or Upper Band, at 1.404 and 1.408, respectively. The RSI value is at 40, suggesting the market remains in a pessimistic sentiment. Therefore, buying at lows is recommended.

Trading direction: Buy

Entry price: 1.401

Target price: 1.44

Stop loss: 1.38

Support: 1.378/1.37/1.357

Resistance: 1.41/1.42/1.44