Economic Indicators Analysis

Before the July decision, the Bank of Canada considered factors like persistent inflation and strong job growth. The USD/CAD pair must clearly drop below 1.3760 to maintain gains and test support at 1.3720/30, with resistance at 1.3810/15. The article offers forward-looking statements. It advises individuals to do thorough research before making investment choices, highlighting that risks can lead to a total loss of capital. The views expressed belong to the authors and may not reflect any official policy. The author currently holds no positions in the mentioned stocks and has not received compensation from the related companies. The Canadian Dollar is facing challenges, even as the US Dollar weakens. Other currencies have made significant gains, but the loonie’s progress is limited. This indicates a particular challenge for Canada that we should note. Historically, major Canadian pension funds, like OTPP and La Caisse, reduced their US Dollar exposure during 2024. This shift shows a long-term move away from US assets by key players, and it’s essential to consider this context as we assess the current market.

Market Position and Strategies

This weakness is evident in the latest data from July 2025. Canada’s inflation dropped to 2.8%, but the economy lost 15,000 jobs, raising unemployment to 6.4%. Compared to the stronger job market and persistent inflation of mid-2024, the current figures suggest the Bank of Canada might need to lower rates sooner than the US Federal Reserve. Given this difference, we anticipate more volatility in USD/CAD in the coming weeks. Traders should consider strategies that benefit from price fluctuations, such as buying straddles or strangles. This approach can lead to profits whether the pair moves sharply up or down as autumn approaches. For those with a specific outlook, the likely trend is a higher USD/CAD. The previous resistance level near 1.3815 seems like a reasonable short-term target. Buying call options on USD/CAD or utilizing call spreads could be a good way to position for further Canadian Dollar weakness with a defined risk. It’s essential to recognize the underlying risk, as unexpected economic data can quickly change the trend. Using stop-losses on any futures positions is important for managing downside risk. Hedging existing short USD/CAD positions with out-of-the-money call options is also a wise strategy right now. Create your live VT Markets account and start trading now.

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