The USDCAD currency pair saw sharp movements after announcements from the Bank of Canada (BoC) and the Federal Reserve (Fed). Investors are now looking ahead to economic data that will influence future actions by the central banks. Initially, the US dollar weakened but then recovered after the Fed’s strong comments. The Fed’s forecast includes two rate cuts in 2025, although officials are divided on this. Fed Chair Powell indicated these cuts would respond to concerns in the labor market, even as recent non-farm payroll reports were disappointing.

Interest Rate Expectations

Future economic reports will shape expectations for US dollar interest rates. Strong data could boost the dollar, while weak data might hurt it. The BoC reduced rates by 25 basis points due to poor Canadian job figures and adopted a cautious stance, with market forecasts largely stable. In terms of USDCAD technical analysis, daily charts show a support level at 1.3720. Buyers might enter near this support, hoping for a rise to 1.40, while sellers look for a drop to 1.3540. The 4-hour chart depicts a downward trendline, and the 1-hour chart identifies a support zone at 1.3765. Key upcoming events include US jobless claims data and Canadian retail sales figures, which may affect market movements. After the Fed’s recent hawkish meeting, a clear gap is forming when compared to the BoC. The Fed’s dot plot suggests fewer rate cuts than the market expects for 2025 and 2026, which is supporting the US dollar. This policy difference will be crucial for our USDCAD outlook in the coming weeks.

Economic Resilience and Strategy

The August CPI report for the US showed inflation at 3.6%, higher than expected, reinforcing the Fed’s cautious approach to further easing. Although the latest Non-Farm Payroll report showed softening—with August adding 195,000 jobs—it’s not weak enough to compel the Fed to act aggressively. Additionally, today’s initial jobless claims rose slightly to 225,000, indicating a cooling labor market, but not a collapse. On the Canadian side, data supports the BoC’s recent rate cut, with August inflation cooling to 2.7%. This data gives the BoC flexibility to ease further if needed, particularly with the recent weak employment report. The upcoming retail sales figures are also expected to disappoint, which could further pressurize the Canadian dollar. For traders, this supports a bullish outlook on USDCAD, as the US economy seems more resilient. Consider buying call options with strike prices above the current 1.3765 level, aiming for a move toward 1.40 in the next month or two. The key support level at 1.3720 offers a solid base to plan trades, serving as a reference for stop-losses or openings. With important data still ahead, we can expect implied volatility to remain elevated. Selling out-of-the-money put spreads below the 1.3720 support level could be a smart strategy to capture premium while expressing a bullish-to-neutral view. This approach takes advantage of fluctuating prices while defining risk if that crucial support level fails. We’ve seen policy differences drive the currency pair higher for extended periods, similar to the 2017-2018 timeframe when the Fed was raising rates while the BoC was more cautious. This historical pattern indicates that the current trend could continue, making long-USDCAD positions appealing. It will be essential to watch if upcoming US data continues to outperform Canadian results. Create your live VT Markets account and start trading now.

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