The Canadian Dollar is showing some weakness, with losses likely stabilizing above 1.37. Meanwhile, the USD is trading above its estimated fair value of 1.3630, indicating that it could gain more. The Bank of Canada’s recent announcements highlight concerns about ongoing inflation and uncertainty surrounding tariffs. Despite a slowdown in the domestic labor market, the Bank is not hurrying to lower interest rates, much like the Federal Reserve.

Technical Outlook

The USD gained some ground overnight, reaching the low 1.37s, which has improved its short-term outlook. We expect resistance around 1.3745/50, and if it breaks above the mid 1.36s, we could see further gains into next week. A strong weekly close could boost the USD’s momentum, potentially pushing it to between 1.3775 and 1.3825. Current support levels are around 1.3690 and 1.3630. It’s essential to do thorough research before making financial decisions. Remember that investing in open markets carries risks, and you could lose your entire capital. We’re noticing a steady rise in USD/CAD, suggesting that the recent strength of the US dollar might continue pushing it higher. The slight weakness in the Canadian Dollar, combined with the USD trading above its fair value, indicates more upside potential in the short term. Last week’s movement into the low 1.37s has strengthened the technical outlook, and the pair seems to be establishing a base for further increases, especially if it stays above the support at 1.3690.

Monetary Policy and Market Implications

The Bank of Canada’s latest communications point to persistent inflation and external uncertainties related to global tariffs. Although the local job market shows signs of weakening, policymakers do not feel the need to change their current interest rate strategy. This cautious approach is similar to that of the Fed, which is delaying rate cuts until there are clearer signs of reduced inflation. Wilkins’ recent remarks suggest that policymakers do not yet see enough justification to lower interest rates. This provides short-term support for the Canadian Dollar, but it is not sufficient to reverse broader trends, especially if US economic data remains strong and there is continued capital flow into the dollar. Resistance currently sits between 1.3745 and 1.3750. A close at or above this level by the end of the week could propel the USD toward 1.3780 or even 1.3825, especially during periods of low liquidity or high volatility. However, if it fails to break through 1.3750 this week, we could see the price move back down toward 1.3690 or even 1.3630. For those trading derivatives linked to USD/CAD, it’s vital to keep a close eye on movements near the upper range. Watch for any discrepancies between price momentum and macroeconomic commentary, especially regarding trade-related volatility. This extends beyond classic inflation concerns, delving into more technical areas where market reactions can occur around scheduled data releases and unscheduled comments from officials. Markets are constantly processing information. If inflation decreases unexpectedly or labor data falls short, it may put pressure on the USD. For now, however, the pair finds support from both positional and structural factors. Traders should consider trailing stops and adjust exposure with these resistance levels in mind. While chasing higher ranges carries risks due to recent volatility, a strong breakout followed by confirmed trading volume could support reopening directional strategies. As always, a detailed analysis of both macroeconomic indicators and price structures is essential. Movements through key levels often occur around major releases, so setups anticipating these risks will likely perform better. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now