The USD/CAD pair is hovering near Friday’s high during the early European session. In October, Canadian consumer spending fell, following a 0.9% drop in September. This decline suggests that the Bank of Canada might consider cutting interest rates.

US Growth Data Expectations

The US Dollar is trading slightly lower as we await the US Q3 GDP data, which is expected to show a growth rate of 3.2%. The USD/CAD pair remains below the 20-day Exponential Moving Average (EMA), indicating continued downward pressure. The Relative Strength Index (RSI) is close to being oversold at 36, showing weak momentum. If the pair closes above the 20-day EMA, it could rise toward 1.3900. However, if it doesn’t, it may drop below 1.3720. The US Bureau of Economic Analysis releases GDP data annually, which is an important indicator of economic health. The consensus for a 3.2% growth rate is set for Tuesday, and this will influence USD market sentiment. Sagar Dua, with a background in financial markets, focuses on chart analysis. He covers topics like Indian Rupee stability, UK GDP growth, inflation forecasts, and how markets react to economic data.

Strength in the USD/CAD Pair

We are observing strength in the USD/CAD pair around the 1.3800 level due to weakness in the Canadian economy. Recent data showing an unexpected 0.2% decline in October’s retail sales raises concerns about consumer spending, indicating a slowdown in the domestic economy. This dip in household demand supports the case for further interest rate cuts from the Bank of Canada (BoC). The BoC has already cut its policy rate twice in 2025, lowering it to 4.0% as November’s inflation fell to 2.5%. More cuts could lead to additional downward pressure on the Canadian dollar. Meanwhile, we’re anticipating tomorrow’s preliminary US Q3 GDP figures, expected to show solid 3.2% growth. The Federal Reserve has kept its interest rate steady at 5.25%, citing ongoing economic strength. The difference in policies between a cutting BoC and a stable Fed creates a bullish outlook for this pair. Given the current economic climate, buying call options on USD/CAD may be a smart strategy to seize potential upside while managing risk. A sustained rally above the 20-day EMA would signal an opportunity to increase long positions, targeting the 1.3900 level initially. This situation is reminiscent of the period from 2016 to 2018, when a more aggressive Federal Reserve led to a significant multi-year rally in USD/CAD. However, we need to be cautious of any drop below the 1.3720 support level mentioned earlier. A fall below this point could challenge the bullish outlook and trigger stop-loss orders for long positions. Create your live VT Markets account and start trading now.

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