The most likely scenario for the October meeting suggests a 50 basis point rate cut. This aggressive forecast is primarily due to inflation, which not only remained within the central bank's target range in September but also showed a downward trend.

According to data released last week, the overall consumer price index (CPI) on a year-over-year basis slowed to 1.6%, whereas a decline to 1.8% was expected. The indicator has been declining for four consecutive months, reaching its lowest level since February 2021 (when it fell to 1.1%). On a monthly basis, the overall CPI has been in negative territory for the second month in a row, reaching a level of -0.4% in September.

Meanwhile, contrary to expectations of a decline, the core CPI slightly accelerated to 1.6% year-over-year (compared to a forecast of 1.5%). However, it is worth noting that despite this increase, the indicator remains within the central bank's target range.

After the release of September inflation data, the market became more confident that the Bank of Canada would adopt an aggressive pace of monetary policy easing this month, implementing a 50-point cut. Additionally, it is expected to announce further steps in this direction. For example, experts at CIBC believe that the regulator will reduce the rate by 200 basis points by mid-next year.

Previously, Bank of Canada Governor Tiff Macklem stated that market participants could expect further rate cuts from the central bank, "considering the progress made in the area of inflation." He noted that the pace and timing of rate cuts would depend on the central bank's assessment of economic data. Macklem did not confirm or deny rumors that a 50-point rate cut was discussed at the September meeting. When asked about this by a journalist, he did not rule out such a development in the future.

In other words, the market is fully prepared for the implementation of an "ultra-dovish" scenario, given the slowing inflation in Canada and the prior rhetoric of the central bank's governor. However, this could backfire on USD/CAD buyers. For the northern trend to continue, the Canadian regulator needs not only to cut the rate by 50 points (a scenario that is already partially priced in) but also to announce further steps in this direction.

The market's most likely scenario does not foresee any pauses in the easing process, so to increase pressure on the Canadian dollar, Macklem must clearly hint at another rate cut during the year's last meeting. He does not necessarily need to specify the expected amount of the cut; it would suffice to signal that the easing process will continue without interruptions.

If, however, the Bank of Canada governor provides cautious assessments regarding the outlook for further rate cuts, USD/CAD sellers will likely take advantage of this cautious approach to trigger a corrective pullback. Even in that case, short positions on the pair would be risky, as the overall fundamental background supports further price growth. After all, inflation in Canada has reached target levels, which cannot be said for inflation in the US, where core CPI and PPI indices unexpectedly accelerated in September. Therefore, even if Macklem does not announce further easing steps, the "dovish" scenario remains the most likely one. This means that after an initial market reaction to the cautious stance from the central bank head, the pair could once again turn upward.

Thus, at the moment, long positions on USD/CAD are risky, as the rhetoric from the Bank of Canada governor might not be as dovish as the market expects. Therefore, a corrective pullback to the first support level at 1.3770 (the Tenkan-sen line on the daily chart) is quite likely in the short term. However, in the medium term, long positions are preferred, given the arguments above. Thus, short-term corrections could be seen as opportunities to open long positions.

From a technical perspective, the pair on the D1 timeframe is trading between the middle and upper lines of the Bollinger Bands, as well as above all lines of the Ichimoku indicator (including the Kumo cloud), which has generated a bullish signal known as the "Line Parade." The main target for the northern movement is the 1.3910 level, which is the upper line of the Bollinger Bands on the daily chart.