Market Drivers: Fed Commitment vs. Canadian Weakness
The Federal Reserve’s decision to maintain rates at 4.50% and its continued focus on tight monetary policy underpin USD strength. Policymakers cited persistent inflation above the 2% target and highlighted uncertainty around new White House tariffs, signaling that future moves will hinge on labor market data.
Recent US jobless claims data bolstered the dollar: continuing claims fell to 1.946 million (forecast: 1.96M) and initial claims hit 218,000 (vs. 222,000 expected). Personal consumption expenditure (PCE) data showed June inflation at 0.3% m/m (up from 0.2%), with the annual core PCE at 2.8%. Should these trends persist, the Fed may keep rates unchanged at its September meeting.
Meanwhile, the Bank of Canada left its key rate at 2.75%, noting rising economic uncertainty, weakening domestic demand, and slowing inflation. Canada’s GDP contracted by 1.5% in Q2, unemployment rose to 6.9% in June, and wage indexation is declining. Consumer price inflation stood at 1.9%, core at 2.5%, and housing price pressures are easing. The BoC left the door open for future policy easing—a clearly dovish signal, weighing on the Canadian dollar.
Technical Picture: Key Levels and Trend Structure
The long-term trend for USD/CAD remains bearish, but this week’s strong rally is a corrective move testing resistance at 1.3860. A decisive breakout targets 1.4000, the trend boundary, and possibly 1.4163 if bullish momentum persists. Conversely, if 1.3860 holds as resistance, a pullback toward 1.3755 is likely, and a break below that could send price toward 1.3554.
Since rebounding from the 1.3557–1.3534 zone in mid-June, the pair has advanced steadily. This week, price tested the key resistance at 1.3816–1.3792; consolidation above here may flip the medium-term trend bullish, targeting the 1.4079–1.4053 range. Failure to hold above 1.3792 puts sellers back in control with downside risk to the June low of 1.3544.

Trading Scenarios
Primary Scenario (Sell Stop):
- Entry: Below 1.3840
- Target: 1.3730
- Stop-Loss: 1.3895
- Timeframe: 9–12 days
Alternative Scenario (Buy Stop):
- Entry: Above 1.3900
- Target: 1.4000
- Stop-Loss: 1.3850
Key levels: 1.3554, 1.3755, 1.3860, 1.4000, 1.4163
Conclusion
USD/CAD’s rally is powered by diverging monetary policy and macroeconomic data. A break above 1.3860 could trigger a move to 1.4000, while a rejection at this level opens the door for a deeper pullback. Monitor US and Canadian macro releases for the next trend catalyst.