CFD Trading Rate US Dollar vs Canadian Dollar (USDCAD)

• USD/CAD holds onto gains near 1.3850 as the BoC is expected to cut interest rates again by 50 bps in December.
• Economists expect the Canadian monthly Retail Sales to have grown by 0.5% in August, slower than 0.9% in July.
• The US Dollar remains supported as Fed large rate cut expectations have been tempered.

The USD/CAD pair turns sideways in Friday’s European session after posting a fresh 11-week high at 1.3870 on Thursday. The Loonie pair clings to gains as the Canadian Dollar (CAD) remains on the backfoot on expectations that the Bank of Canada (BoC) would continue an aggressive policy-easing stance in the next policy meeting in December.

The BoC reduced its key borrowing rates by a larger-than-usual size of 50 basis points (bps) to 3.75% on Wednesday, as expected. This was the fourth straight interest rate cut in a row, however, prior three rate reductions were of 25 bps.

Investors expect the BoC to cut again by 50 bps amid growing downside risks to Canadian economic growth. "We continue to expect one more 50-bps rate cut from the BoC this December," Claire Fan, an economist at RBC, wrote in a report. Fan cautioned against the real GDP growth remaining subdued for longer as interest rates remain restrictive until 2025.

Meanwhile, investors await the Canadian monthly Retail Sales data for August, which will be published on Friday. The Retail Sales data, a key measure of consumer spending, is estimated to have grown by 0.5%, slower than 0.9% in July.

In the United States (US) region, tempered expectations for the Federal Reserve (Fed) to pursue an aggressive interest rate cut cycle continue to limit the downside in the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, holds the key support of 104.00. Investors expect the Fed to cut interest rates by 25 bps in November and December.

• USD/CAD holds ground near its two-month high of 1.3868, reached on Thursday.
• The US Dollar receives support due to rising bets of a potential second term for former President Donald Trump.
• The weakening of the commodity-linked CAD is bolstered by lower Oil prices.

The USD/CAD pair maintains its position on two consecutive days of gains, trading around 1.3850 during the Asian session on Friday. This level is near its two-month peak of 1.3868, reached on Thursday. The pair's strength can be linked to the robust performance of the US Dollar (USD), driven by rising expectations that the Federal Reserve will take a less aggressive approach to interest rate cuts than previously thought.

Additionally, the Greenback is bolstered by increasing speculation regarding a potential second term for former President Donald Trump in the upcoming US presidential election in November, particularly due to inflationary policies that include higher tariffs and lower taxes.

On Thursday, Republican nominee Donald Trump returned to his familiar reality show catchphrase during an event in Las Vegas, Nevada. Trump stated, "Under the Trump administration, we're going to build an economy that lifts up all Americans, including African Americans, Hispanic Americans, and also members of our great Asian American and Pacific Islander community, many of whom are here today," as reported by Reuters.

Meanwhile, Vice President Kamala Harris enjoyed the backing of rock legend Bruce Springsteen, entertainer Tyler Perry, and former President Barack Obama at a rally in Georgia, which attracted thousands of supporters in this key battleground state.

The commodity-linked Canadian Dollar (CAD) may continue to weaken amid declining crude Oil prices, as Canada is the largest oil exporter to the United States (US). As of now, West Texas Intermediate (WTI) Oil price is experiencing its third consecutive day of losses, trading around $70.20 per barrel.

Traders are likely to focus on Canada’s Retail Sales data set to be released later in the North American session. Additionally, Bank of Canada (BoC) Governor Tiff Macklem is scheduled to speak with journalists both in-person and virtually during the IMF meeting.

The Bank of Canada (BoC) duly delivered the 50bps cut that the markets were more or less expecting yesterday. The CAD wobbled for a bit but held its ground around the mid/ upper 1.38s, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

CAD steadies after BoC policy decision

“Messaging that indicated the easing process will continue while inflation risks more balanced now. As such, terminal rate pricing just under 3% for the middle of next year is little changed, helping steady the CAD. Still, the door was not closed on further 1/2 point cuts and the unusually wide policy spread over the Fed that is extending into wide swap and cash bond spreads persists.

“The CAD has picked up a little more support through the overnight session but prospects for a significant rebound are limited with rate differentials as wide as they are. Spot’s mildly negative price reaction to yesterday’s minor push above 1.3850 resistance has prompted a more neutral, short-term tone in spot today.”

“USD/CAD remains deeply overbought on the intraday and daily studies which may slow USD gains in the short run and could prompt a modest pullback (at least) in the recent bull trend. Support is 1.3800/10, with a push below here potentially extending to test support at 1.3750.”

• USD/CAD drifts lower on Thursday and is pressured by a combination of factors.
• Rising Oil prices underpin the Loonie and weigh on the pair amid a softer USD.
• The BoC’s outsized rate cut and bets for a less aggressive Fed easing limit losses.

The USD/CAD pair attracts some sellers on Thursday and moves away from its highest level since early August, around the 1.3860-1.3865 region touched in reaction to the Bank of Canada's (BoC) oversized rate cut the previous day. The Canadian central bank took an aggressive step and decided to lower its key benchmark interest rate by 50 basis points (bps) for the first time since the COVID-19 pandemic. Moreover, the recent decline in Canada’s annual inflation rate to 1.6% in September, along with signs that the economy and labour markets are weakening, paves the way for aggressive interest rate cuts going forward. This, in turn, weighed on the Canadian Dollar (USD) and provided a goodish intraday lift to the currency pair. 

That said, a fresh leg up in Crude Oil prices, bolstered by persistent geopolitical risks stemming from the ongoing conflicts in the Middle East, offers some support to the commodity-linked Loonie. Apart from this, a modest US Dollar (USD) pullback, from its highest level since July 30 touched on Wednesday, is seen exerting some downward pressure on the USD/CAD pair. The US Treasury bond yields retreat from a three-month peak, which, along with a stable performance across the global equity markets, prompts some profit-taking around the safe-haven buck. That said, bets for smaller rate cuts by the Federal Reserve (Fed) and deficit-spending concerns after the US election should limit the downside for the US bond yields. 

Investors remain concerned that the spending plans of both Vice President Kamala Harris and the Republican nominee Donald Trump will further increase the deficit. Furthermore, rising odds of former President Donald Trump winning the November 5 US Presidential election fuel speculations about the launch of potentially inflation-generating tariffs. This might continue to push the US bond yields higher and favors the USD bulls, supporting prospects for the emergence of some dip-buying around the USD/CAD pair. Traders now look forward to the release of the flash US PMI prints. Apart from this, the US bond yields will influence the USD, which, along with Oil price dynamics, might produce short-term trading opportunities.

Technical Outlook

From a technical perspective, a daily close above the 1.3800 mark earlier this week was seen as a fresh trigger for bulls. Adding to this, oscillators on the daily chart are holding comfortably in positive territory and suggest that the path of least resistance for the USD/CAD pair is to the upside. That said, the overnight failure to build on the momentum beyond the 1.3850 region warrants some caution before positioning for further gains. Acceptance above the said area could lift spot prices beyond the 1.3875 intermediate hurdle, towards reclaiming the 1.3900 mark. The upward trajectory could extend further towards challenging the highest level since October 2022, around the 1.3945 region touched last month. 

On the flip side, weakness below the 1.3800 mark could be seen as a buying opportunity. This should help limit the downside near last week's swing low, around the 1.3750-1.3745 area. A convincing break below the latter, however, might prompt some technical selling and drag the USD/CAD pair further below the 1.3700 mark, towards testing the 100-day Simple Moving Average (SMA), currently pegged near the 1.3665 region. This is followed by the 200-day SMA, around the 1.3625 zone, which if broken will negate the positive outlook and shift the near-term bias in favor of bearish traders.

USD/CAD daily chart

• USD/CAD falls slightly to near 1.3820 after refreshing an 11-week high.
• The BoC cut its key borrowing rates by 50 bps to 3.75% on Wednesday, as expected.
• The US Dollar holds onto gains as the Fed is expected to cut rates gradually.

The USD/CAD pair corrects slightly to near 1.3820 in Thursday’s European session after posting a fresh 11-week high above 1.3850 on Wednesday. The Loonie pair has shown a one-sided rally since September 25, which appears to have paused for a while as investors look for fresh cues about the likely monetary policy action by the Bank of Canada (BoC) and the Federal Reserve (Fed) in the remaining year.

On Wednesday, the BoC reduced its key borrowing rates by 50 basis points (bps) to 3.75%, as expected. This was the fourth straight interest rate cut by the BoC in a row. The BoC has cut its interest rates by 125 basis points (bps) this year as officials are worried about the continuation of the disinflationary trend due to weak economic growth.

Going forward, the Canadian Dollar (CAD) will be influenced by the monthly Retail Sales data for August, which will be published on Friday. The Retail Sales data, a key measure of consumer spending, is estimated to have grown by 0.5%, slower than 0.9% in July.

Meanwhile, the US Dollar (USD) clings to gains slightly above the August high as investors expect the Fed to follow a gradual policy-easing approach as upbeat Nonfarm Payrolls (NFP), Services PMI, and Retail Sales data for September have diminished risks of a downturn.

USD/CAD witnessed strong buying interest after a breakout above the September 19 high of around 1.3650.

The near-term outlook of the Loonie pair remains firm as the 20- and 50-day Exponential Moving Averages (EMAs) near 1.3725 and 1.36665, respectively, are sloping higher.

The 14-day Relative Strength Index (RSI) oscillates inside the bullish range of 60.00-80.00, pointing to an active momentum.

More upside toward the round-level resistance of 1.3900 and Year-To-Date (YTD) high of 1.3945 would appear if the pair decisively breaks above Wednesday’s high of 1.3863.

In an alternate scenario, a downside move below the September 19 high of around 1.3650 will expose the asset to a May 16 low near 1.3600, followed by a September 30 high of 1.3538.

USD/CAD daily chart

(This story was corrected at 08:00 GMT to say in the last paragraph that a downside move below the September 19 high around 1.3650 will expose the asset to the May 16 low near 1.3600, followed by the September 30 high of 1.3538, not the September 13 high of 1.3538)

• USD/CAD attracts some sellers on Thursday amid a modest USD pullback from a three-month high.
• Renewed buying around Oil prices underpins the Loonie and exerts additional pressure on the pair.
• The BoC’s jumbo rate cut and bets for a less aggressive Fed easing warrant some caution for bears.

The USD/CAD pair edges lower during the Asian session on Thursday and moves away from its highest level since August 5, around the 1.3860-1.3865 zone touched the previous day. Spot prices currently trade around the 1.3825 area, down nearly 0.10% for the day amid a modest US Dollar (USD) downtick, though any meaningful corrective decline still seems elusive. 

The USD Index (DXY), which tracks the Greenback against a basket of currencies, eases from a nearly three-month top as bulls opt to take some profits off the table after the recent strong gains registered over the past four weeks or so. Apart from this, the emergence of fresh buying around Crude Oil prices underpins the commodity-linked Loonie and exerts some downward pressure on the USD/CAD pair. 

Meanwhile, growing acceptance that the Federal Reserve (Fed) will proceed with modest rate cuts over the next year keeps the US Treasury bond yields elevated near a three-month peak. This, along with the US political uncertainty and geopolitical risks stemming from the ongoing conflicts in the Middle East, should continue to act as a tailwind for the safe-haven buck and offer some support to the USD/CAD pair. 

Furthermore, the Bank of Canada's (BoC) decision to lower its key interest rate by 50 basis points (bps) for the first time since the COVID-19 pandemic and the prospects for further rate cuts should cap gains for the Canadian Dollar (CAD). This, in turn, makes it prudent to wait for strong follow-through selling before confirming that the USD/CAD pair has topped out in the near term and positioning for deeper losses.

Market participants now look forward to the release of the flash US PMI prints, which, along with the US bond yields and the broader risk sentiment, will drive the USD demand. Apart from this, Oil price dynamics should contribute to producing short-term trading opportunities. Nevertheless, the fundamental backdrop suggests that the path of least resistance for the USD/CAD pair remains to the upside.

• USD/CAD clings to gains near 1.3850 as the BoC reduces its key borrowing rates by 50 bps to 3.75%, as expected.
• The BoC maintains its growth guidance for this year at 1.2%.
• The US Dollar gains on multiple tailwinds.

The USD/CAD pair remains firm near 1.3850 as the Bank of Canada (BoC) has reduced its key borrowing rates by 50 basis points (bps) to 3.75%. This is the fourth straight interest rate cut by the BoC in a row. However, the size by which the BoC has cut interest rates on Wednesday is larger-than-usual.

The BoC was widely anticipated to deliver an outsize interest rate cut as officials worry that inflationary pressures in Canada could remain lower below 2% amid growing risks of a downturn. Risks to BoC’s dual mandate have not shifted to employment. The Unemployment Rate remains above 6% since February, which should be under 5% theoretically.

The BoC may continue lowering interest rates further if the jobless rate remains elevated. The Canadian swaps market sees roughly a 25% chance of another 50-basis point rate cut in December. Meanwhile, the central bank has left its growth rate for this year unchanged at 1.2%. After the interest rate decision, BoC Governor Tiff Macklem said that their focus is to maintain stable, low inflation.

Meanwhile, higher US bond yields have strengthened the US Dollar (USD). The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, recaptures August’s high of 104.45. US Treasury yields gain amid growing speculation over United States (US) presidential elections and expectations of a more gradual Federal Reserve’s (Fed) policy-easing cycle.

In today’s session, investors will pay close attention to the Fed’s Beige Book, which summarizes economic conditions across 12 Fed districts and will be published at 18:00 GMT.

The Canadian Dollar (CAD) is holding relatively steady against the strong USD ahead of the Bank of Canada policy decision and MPR at 9.45ET. Governor Macklem and Senior DG Rogers hold their press conference at 10.30ET, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

CAD holds little changed

“Markers are more or less fully priced for a 1/2 point cut in the target rate to 3.75% although pricing has shaded a little from near total conviction late last week to about 45bps of easing reflected in swaps as of late yesterday afternoon. The house call is 50bps, but without much enthusiasm or conviction. While markets are anticipating a more aggressive move, the Bank is not obligated to meet market expectations.”

“If it does so, the bolder move may be accompanied by more cautious language about the path forward. There certainly are grounds for caution regardless, with the CAD soft and the US election outcome a major risk in the very near future. An aggressive move and dovish language should see spot punch through 1.3850. A ‘hawkish’ cut may see the CAD steady and rebound somewhat but near-term gains may be limited to the mid/upper-1.37s.”

“USDCAD gains remain very stretched and spot is showing signs of steadying around the 1.3822/76.4% Fibonacci retracement of the August/September drop. But there is little sign of a turnaround in the USD at this point and—absent that—risks remain tilted towards USD strength persisting or extending through 1.3850 to retest the August peak at 1.3945/50. Support is 1.3750.”

• USD/CAD ticks higher amid an extension of the recent USD rally to a nearly three-month top.
• Bets for a larger BoC rate cut, softer Oil prices undermine the Loonie and also lend support.
• The technical setup favors bullish traders and supports prospects for further near-term gains.

The USD/CAD pair attracts some dip-buyers following the previous day's modest slide and sticks to its positive bias around the 1.3825 region through the first half of the European session on Wednesday. Spot prices remain within the striking distance of the highest level since August 6 touched earlier this week as traders keenly await the Bank of Canada (BoC) policy decision before positioning for the next leg of a directional move. 

Heading into the key central bank event risk, the recent US Dollar (USD) upswing to its highest level since early August, led by bets for a less aggressive policy easing by the Federal Reserve (Fed), continues to act as a tailwind for the USD/CAD pair. Apart from this, a downtick in Crude Oil prices is seen undermining the commodity-linked Loonie and offering additional support to the currency pair amid expectations for a larger BoC rate cut later today. 

From a technical perspective, this week's breakout and a daily close above the 1.3800 mark could be seen as a fresh trigger for bullish traders. This, along with the fact that oscillators on the daily chart are holding comfortably in positive territory, suggests that the path of least resistance for the USD/CAD pair is to the upside. That said, it will still be prudent to wait for a move beyond the monthly high, around the 1.3850 area, before positioning for further gains.

The subsequent move-up has the potential to lift spot prices beyond the 1.3875 intermediate hurdle, towards reclaiming the 1.3900 mark. The USD/CAD pair could eventually aim to challenge its highest level since October 2022, around the 1.3945 region touched last month. 

On the flip side, the 1.3800 round figure could offer some support ahead of last week's swing low, around the 1.3750-1.3745 area. A convincing break below might prompt technical selling and drag the USD/CAD pair further below the 1.3700 mark, towards testing the 100-day Simple Moving Average (SMA), near the 1.3665 region. This is followed by the 200-day SMA, around the 1.3625 zone, which if broken might shift the bias in favor of bearish traders.

USD/CAD daily chart

• USD/CAD remains steady as traders adopt caution ahead of the BoC interest rate decision.
• Traders expect the Bank of Canada to deliver a substantial 50 basis point rate cut in October.
• The US Dollar gains ground as Treasury yields rise amid rising odds of nominal rate cuts by the Fed.

The USD/CAD pair moves sideways, trading around 1.3820 during the Asian session on Wednesday, as traders await the Bank of Canada (BoC) interest rate decision later in the North American session. Market expectations are leaning toward a more substantial 50 basis point rate cut from the BoC.

This potential rate cut would mark the third consecutive rate cut and the first of this magnitude, prompted by decreasing price pressures, along with a significant decline in labor growth and household spending. Consumer inflation fell to 1.6% in September, the lowest level in over three years, reflecting the second consecutive month of price growth within the Bank of Canada's 2% target.

However, TD Securities stated in its analysis, "We expect the Bank of Canada (BoC) to cut rates by 25 basis points to 4.00% in October, as we do not believe larger cuts are necessary to maintain 2% inflation. Additionally, we do not anticipate that market pricing will heavily influence the Bank's decision."

However, the downside of the commodity-linked Canadian Dollar (CAD) could be mitigated due to higher crude Oil prices, as Canada is the largest Oil exporter to the United States (US). West Texas Intermediate (WTI) Oil price extends its gains for the third successive session, trading around $71.40 per barrel at the time of writing.

The US Dollar (USD) strengthened as rising Treasury yields amid rising odds of nominal rate cuts by the Federal Reserve (Fed). The US Dollar Index (DXY), which tracks the USD against six major currencies, is trading near a two-month high at 104.20. Meanwhile, yields on 2-year and 10-year US Treasury bonds are at 4.04% and 4.21%, respectively.

Recent signs of economic resilience and concerns about a potential resurgence of inflation have diminished the chances of a significant rate cut by the Federal Reserve in November. According to the CME FedWatch Tool, there is a 91% probability of a 25-basis-point rate cut, with no expectation of a larger 50-basis-point cut.

The Canadian Dollar (CAD) has had a minor reprieve this morning as it holds little changed on the session but some 20 ticks above yesterday’s low against the USD in the mid-1.38s, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

CAD steadies ahead of BoC

“Weak risk appetite (today) and wider US/Canada spreads are unhelpful for the CAD but some consolidation may be in order ahead of the BoC decision Wednesday. Markets continue to reflect the expectation that the Bank will cut the policy rate 50bps but the accumulation of easing thus far, a weak CAD, uncertainty about the outcome of the US election could all yet combine to prompt policymakers to keep the pace of easing at a more moderate 1/4 point.”

“Still, for now, there seems little scope for the CAD to recover too much ground. Estimated FV sits at 1.3863 today. Spot is holding in a very tight consolidation range so far on the session. That could be a positive sign for the CAD if the situation persists through the entire session but right now, it just tells us that spot has not moved a whole lot today.”

“Oscillator signals continue to flag a well overbought USD and I had noted some USD resistance around the 1.3850 area but unless or until price signals turn more obviously USD-negative, the risk of a push on to retest 1.3940/50 remains. Support is 1.3750.”

• USD/CAD consolidates as investors await BoC’s policy decision, which will be announced on Wednesday.
• The BoC is expected to cut interest rates by 50 bps to 3.75%.
• The uncertainty over US presidential elections keeps market sentiment jittery.

The USD/CAD pair consolidates in a tight range above the round-level support of 1.3800 in Tuesday’s European session. The Loonie pair trades back and forth, with investors focusing on the Bank of Canada’s (BoC) interest rate decision, which will be announced on Wednesday.

The BoC is expected to reduce its key borrowing rates by 50 basis points (bps) to 3.75%. This would be the fourth straight interest rate cut by BoC in a row. However, the rate-cut size will be larger than usual due to consistently rising jobless rate and slowing inflationary pressures. In September, the Canadian Unemployment Rate decelerated to 6.5% from 6.6% in August but is still higher than 5%, which is often considered a full employment level.

The Canadian economy needs fresh stimulus to boost overall spending and employment levels, which makes more rate cuts as appropriate. Meanwhile, a tight competition between former US President Donald Trump and current Vice President Kamala Harris for presidential elections, which are two weeks away has also kept the Canadian Dollar (CAD) on tenterhooks. The victory of Trump would result in higher import tariffs, which would undermine the currencies of the United States’s (US) trading partners, such as Canada.

Meanwhile, a firm US Dollar (USD) has also weighed on the Loonie pair. The US Dollar’s outlook is upbeat as investors expect a gradual rate-cut cycle from the Federal Reserve (Fed) in the remainder of the year. According to the CME FedWatch tool, the Fed is expected to cut interest rates by 25 basis points (bps) in November and December.

On the economic front, investors will pay close attention to the flash S&P Global PMI data for October, which will be published on Thursday.

• USD/CAD bulls take a breather after the recent runup to the highest level since August 6.
• The recent upswing in the USD acts as a tailwind for the pair amid a downtick in Oil prices.
• Bets for a larger BoC rate cut support prospects for a further near-term appreciating move.

The USD/CAD pair oscillates in a narrow band around the 1.3830 region during the Asian session on Tuesday and remains well within the striking distance of its highest level since August 6 touched the previous day. Meanwhile, the fundamental backdrop seems tilted in favor of bullish traders and suggests that the path of least resistance for spot prices remains to the upside. 

Crude Oil prices struggle to capitalize on the previous day's modest gains amid concerns over slowing demand and a prolonged economic downturn in China – the world's top importer. Apart from this, bets for a larger, 50 bps rate cut by the Bank of Canada, bolstered by softer domestic consumer inflation figures, might continue to undermine the commodity-linked Loonie. This, along with the underlying strong bullish sentiment surrounding the US Dollar (USD), validates the near-term positive outlook for the USD/CAD pair. 

The incoming upbeat US macro data suggested that the economy remains on a strong footing, which should allow the Federal Reserve (Fed) to be patient in cutting interest rates. Moreover, the recent comments by a slew of influential FOMC members reaffirmed market expectations for a less aggressive policy easing by the US central bank. This, in turn, pushes the US Treasury bond yields and the USD Index (DXY), which tracks the Greenback against a basket of currencies, to their highest level in almost three months.

Furthermore, a turnaround in the global risk sentiment – as depicted by a softer tone around the equity markets – should continue to benefit the safe-haven buck and support prospects for a further appreciating move for the USD/CAD pair. Traders now look forward to the release of the Richmond Manufacturing Index from the US, which, along with a speech by Philadelphia Fed President Patrick Harker, will drive the USD demand. Apart from this, Oil price dynamics should provide some impetus to the USD/CAD pair.

The Canadian Dollar (CAD) is one of the better-performing currencies on the session when looking at overall ground lost versus the USD on the session but it is trading at session lows against the USD as our trading day gears up, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

CAD weak but little changed in low 1.38s

“Wider spreads remain the primary drag on the CAD, as bond and swap spreads extend recent gains on firmer US yields generally and ahead of the BoC policy decision Wednesday. Markets have all but fully priced in a 50bps cut now, leaving the door wide open for the Bank to deliver. Could that mean the CAD gets a ‘sell the mystery, buy the history’ rebound after the fact? USD/CAD fair value is estimated at 1.3840 this morning.”

“The CAD looks soft and vulnerable to more losses on the charts. The only thing in the CAD’s favour is perhaps that this USD move higher is about as overcooked now as the USD sell-off was in August, oscillators suggest. That does not necessarily mean the USD will drop in the near term but it does mean the path higher may be a little harder from here.”

“Resistance remains 1.3850 and 1.3950. Support is 1.3750 and 1.3650.”

• USD/CAD strives to revisit the immediate resistance of 1.3840 ahead of the BoC’s policy decision on Wednesday.
• The BoC is expected to cut interest rates by 50 bps to 3.75%.
• The next move in the US Dollar will be influenced by headlines regarding US presidential elections.

The USD/CAD pair extends its winning spree for the third trading session on Monday. The Loonie pair sustains above 1.3800 and aims to recapture the 11-month high of 1.3840 ahead of the Bank of Canada’s (BoC) interest rate decision, which will be announced on Wednesday.

Economists expect the BoC to cut its borrowing rates for the fourth time in a row. However, the pace at which it is expected to lower interest rates is larger-than-usual. With Canadian inflation remaining under control and the jobless rate beyond 6% despite back-to-back rate cuts, the BoC is expected to cut rates by 50 basis points (bps) to 3.75%.

This would keep the Canadian Dollar (CAD) on the back for a longer period as other central bankers such as the Federal Reserve (Fed), the Bank of England (BoE), and the European Central Bank (ECB) are expected to follow a gradual policy-easing cycle.

Meanwhile, sheer strength in the US Dollar (USD) has also kept the Loonie pair on the front foot. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, resumes its upside journey after a mild correction on Friday. Growing uncertainty over the United States (US) presidential elections has strengthened the US Dollar’s appeal as a safe haven.

USD/CAD witnessed strong buying interest after a breakout above the September 19 high around 1.3650.

The near-term outlook of the Loonie pair has strengthened further as the 20- and 50-day Exponential Moving Averages (EMAs) near 1.3645 and 1.3690, respectively, are sloping higher.

The 14-day Relative Strength Index (RSI) oscillates inside the bullish range of 60.00-80.00, pointing to an active momentum.

More upside towards the round-level resistance of 1.3900 and Year-To-Date (YTD) high of 1.3945 would appear if the pair decisively breaks above April 16 high of 1.3846.

In an alternate scenario, a downside move below the September 19 high of around 1.3650 will expose the asset to a May 16 low near 1.3600, followed by a September 13 high of 1.3538.

USD/CAD daily chart

• USD/CAD receives support as BoC is widely expected to reduce interest rates by 50 basis points on Wednesday.
• The commodity-linked CAD faced challenges due to lower crude Oil prices.
• The US Dollar gains ground as the economy's resilience has increased the odds of nominal rate cuts by the Fed.

USD/CAD continues to gain ground as the Canadian Dollar (CAD) receives downward pressure ahead of the Bank of Canada (BoC) interest rate decision scheduled for Wednesday. The USD/CAD pair moves above 1.3800 during Monday’s Asian trading hours.

Decreasing price pressures, combined with a notable decline in labor growth and household spending, have fueled expectations that the Bank of Canada (BoC) will implement a significant interest rate cut of 50 basis points (bps) at its upcoming monetary policy meeting.

Additionally, lower Oil prices have put pressure on the commodity-linked Loonie Dollar as Canada is the largest Oil exporter to the United States (US). Last week, crude Oil prices depreciated by more than 7%, partly due to slowing economic growth in China and easing Middle-East tensions. West Texas Intermediate (WTI) Oil price trades around $69.00 per barrel at the time of writing.

US Dollar (USD) receives support due to fading odds of further aggressive rate cuts by the US Federal Reserve (Fed) in 2024. Last week’s data showed the US economy's resilience, which has strengthened the likelihood of a nominal rate cut by the Federal Reserve (Fed) in November.

According to the CME FedWatch Tool, the probability of a 25-basis-point rate cut in November has risen to 99.3%, up from 89.5% a week earlier.

The monthly US Retail Sales rose by 0.4% in September, surpassing the 0.1% increase recorded in August and the expected gain of 0.3%. Additionally, US Initial Jobless Claims fell by 19,000 during the week ending October 11, the largest decline in three months. The total number of claims dropped to 241,000, significantly below the anticipated 260,000.

• USD/CAD aims to break above 1.3800 as investors expect the Fed to cut interest rates by 50 bps on Wednesday.
• The Canadian economy needs more stimulus to uplift overall demand and job growth.
• The US Dollar struggles to extend its upside as investors look for fresh cues about the Fed’s interest rate outlook.

The USD/CAD pair gathers strength to break above the immediate resistance of 1.3800 in Friday’s North American session. The Loonie pair remains firm as the Canadian Dollar (CAD) weakens on expectations that the Bank of Canada (BoC) could announce a super-size interest rate cut of 50 basis points (bps) in its monetary policy meeting on Wednesday.

Sliding price pressures and a sharp weakness in labor growth and household spending have prompted expectations of BoC larger-than-usual rate cuts. The BoC has already reduced its key borrowing rates by 75 basis points (bps) to 4.25% this year. This would be the fourth consecutive interest rate cut by the BoC in a row. Canada’s Consumer Price Index (CPI) slid to 1.6% in September, lower than the bank’s target of 2%.

Meanwhile, an eight-day winning streak in the US Dollar (USD) appears to have paused as investors look for fresh cues about the Federal Reserve’s (Fed) likely interest rate action in the remainder of the year. Currently, financial market participants expect the Fed to cut interest rates further by 25 bps in both November and December.

USD/CAD witnessed strong buying interest after a Double Bottom formation near 1.3440 on a daily timeframe. The bullish reversal formation got the green signal after a breakout above the September 19 high around 1.3650.

The near-term outlook of the Loonie pair has strengthened further as the 20- and 50-day Exponential Moving Averages (EMAs) deliver a bull cross near 1.3600.

The 14-day Relative Strength Index (RSI) shifts into the bullish range of 60.00-80.00, pointing to an active momentum.

More upside towards April 16 high of 1.3846 and Year-To-Date (YTD) high of 1.3945 would appear if the pair decisively breaks above the round-level resistance of 1.3800.

In an alternate scenario, a downside move below the September 19 high around 1.3650 will expose the asset to May 16 low near 1.3600, followed by September 13 high of 1.3538.

USD/CAD daily chart

The Canadian Dollar (CAD) is little changed against the USD, with spot holding close to 1.38 on the day. The CAD’s slide against the USD steadied through mid-week which was not unexpected, given the extended and sustained drop seen since the start of the month, Scotiabank’s Chief FX Strategist Shaun Osborne notes.

CAD holds little changed near 1.38

“USD/CAD gains looked stretched relative to our fair value estimate at the start of the week and while the CAD has been able to stabilize, headwinds remain significant—especially from the cash bond and swap spread perspective where the risk of a November hold decision from the Fed and a 50bps cut by the BoC next week has driven differentials wider.”

“The 2Y bond spread gap has widened to 95bps—the widest spread since the late 1990s. The CAD will struggle to rebound while rate spreads remain this significant. Spot’s peak Tuesday around the 1.3840 mark coincides with minor resistance denoted by the early April high.”

“Spot rebounded smartly Thursday but the drop in the USD from the early week peak has left a bearish print on the intraday and daily charts (‘shooting star’ signals) which may represent a near -term top for the USD, particularly with the latest run higher in the USD looking stretched on the charts. Support is likely to remain firm on minor dips to the low/mid 1.37s for now. Major support is 1.3645/50.”

• USD/CAD trades sideways near 1.3800 as investors await Fed speakers for more guidance on interest rates.
• The Fed is expected to follow a moderate rate-cut path.
• Investors expect the BoC to cut interest rates again to revive job growth.

The USD/CAD pair trades in a tight range near the round-level resistance of 1.3800 in Friday’s European session. The Loonie pair trades sideways as investors await speeches from a slew of Federal Reserve (Fed) officials, who are scheduled to speak in the North American session.

Fed policymakers such as Atlanta Fed Bank President Raphael Bostic, Minneapolis Fed Bank President Neel Kashkari, and Fed Governor Christopher Waller are expected to provide fresh cues about the likely interest rate action in the remainder of the year.

According to the CME FedWatch tool, 30-day Federal Funds futures pricing data shows that there will a 50 basis points (bps) further decline in interest rates in the remaining year, suggesting that the Fed will cut its borrowing rates by 25 bps in November and December.

The Fed seems to follow a moderate policy-easing cycle as recent United States (US) data for September has diminished economic slowdown risks.

Meanwhile, the Canadian Dollar (CAD) broadly stays on the backfoot as the Bank of Canada (BoC) is expected to cut its interest rates again on Wednesday. The BoC has already reduced its borrowing rates by 75 bps to 4.25% this year.

More rate cuts from the BoC appear to be in the pipeline as price pressures in Canada seem to have come under control, and the economy is not operating at full-employment levels. Canadian Unemployment Rate decelerated at a faster-than-expected pace to 6.6% in September but is well above the bank’s target of 5%.