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.

USD/CAD at multi-month highs after Fed holds rates steadyUSD/CAD at multi-month highs after Fed holds rates steady

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.