The USDCAD pair fell after Fed Chair Powell made dovish comments at the Jackson Hole Symposium. His remarks raised expectations for a possible rate cut in September, now at an 85% chance. Traders also expect 54 basis points of easing by the end of the year, impacting US interest rate predictions and the USD. Now, all eyes are on the upcoming US Non-Farm Payroll (NFP) report, which will likely influence interest rate forecasts. Strong data could shift the rate cut probability to a 50/50 chance, while weaker data may confirm dovish expectations. In Canada, inflation is steady, staying close to the upper target range, and recent employment reports have been positive.

Forex Trends and Strategies

The Bank of Canada has kept interest rates steady but is open to changes based on growth and inflation data, anticipating 23 basis points of easing by year-end. On the daily USDCAD chart, sellers are likely aiming for a drop to the 1.36 level, while buyers are seeking a rise to 1.40 if prices exceed 1.3860. On the 4-hour chart, a significant trendline supports bullish movement, with buyers targeting 1.40 and sellers looking to break to 1.36. The 1-hour chart offers limited new insights, with similar strategies in place for both buyers and sellers. Upcoming data includes US Consumer Confidence, Jobless Claims, and Canadian GDP figures. Following the Federal Reserve’s dovish stance at Jackson Hole, the US dollar faces considerable pressure. Currently, the market is pricing in an 85% chance of a rate cut in September 2025, altering momentum in the USDCAD pair. This sets the stage for further US dollar weakness in the coming weeks. There is a clear divergence between the central banks. Canada’s inflation remains around 3%, boosted by a surprising rise in their July 2025 employment report. In contrast, the latest US PCE data from July 2025 indicated a decrease to 2.7%, allowing the Fed more flexibility to ease policy. This gap in policies creates a strong case for selling US dollars against Canadian dollars. Looking back at late 2023, we saw a similar situation when expectations for Fed cuts increased, leading to a sharp decline in the dollar over several weeks. The current setup resembles that past scenario, suggesting potential for further declines. The upcoming US Non-Farm Payrolls report will be a key test for this analysis.

Market Reactions and Economic Data

For traders expecting ongoing USDCAD weakness, buying put options with a strike price at or below 1.36 seems wise. This strategy takes advantage of the downward momentum while managing risk, especially if prices struggle to stay above the major upward trendline. Any rise towards 1.3860 could be viewed as a chance to increase bearish positions. On the other hand, a surprisingly strong US jobs report, such as one over 250,000, could quickly reverse these bearish bets and push USDCAD higher. In this case, traders might consider using call options to position for a break above the 1.3860 level, with the primary target shifting toward 1.40. The forthcoming economic data, especially the US PCE price index and Canadian GDP this Friday, is expected to trigger significant volatility. This environment is ideal for strategies like straddles or strangles for those anticipating a large price move but uncertain about the direction. These reports will be crucial in determining if the trend of cooling US economic activity continues. Create your live VT Markets account and start trading now.

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