USD/CAD Forecast: Dollar Weakens as Fed and Bank of Canada Cut Rates

The Federal Reserve cut rates by 25 basis points to 4.25%, though the move had little effect on the greenback as markets had already priced it in. In addition, the Fed raised its GDP growth forecasts for both this year and next, reducing the likelihood of more aggressive easing while boosting the appeal of the dollar compared to dovish stances from other central banks.

The Bank of Canada also unanimously lowered its benchmark rate by 25 basis points to 2.50%, the lowest level in three years, after leaving it unchanged for three consecutive meetings. Policymakers noted that the Canadian economy continues to grow moderately but shows signs of vulnerability amid high US import tariffs. In Q2, GDP slowed by 1.6% and exports dropped 27.0%. Inflation pressures remain possible, but with CPI slightly below the 2.0% target, the central bank has some room for maneuver.

Monday’s Canadian data had little impact on the pair: the Industrial Product Price Index slipped from 0.7% to 0.5% in August (vs. 0.9% expected), while the Raw Materials Price Index fell from 0.3% to –0.6% (vs. 1.2% forecast).

Support and resistance levels

Bollinger Bands on the daily chart show flat dynamics, with narrowing ranges reflecting mixed short-term trading. MACD is rising, holding a weak buy signal as the histogram stays above the signal line. Stochastic is climbing quickly, nearing overbought territory and pointing to risks of a short-term pullback in the US dollar.

Resistance levels: 1.3825, 1.3845, 1.3867, 1.3889.

Support levels: 1.3800, 1.3765, 1.3726, 1.3685.

Trading scenarios and USD/CAD outlook

Long positions can be opened after a confident breakout above 1.3845, targeting 1.3889. Stop-loss at 1.3825. Expected timeframe: 2–3 days.

If bearish momentum returns and the pair breaks below 1.3800, short positions may be considered with a target at 1.3750. Stop-loss at 1.3825.