USDCAD returned to its trend after testing the 1.39 resistance level for the fifth time. The recent comeback of the Canadian dollar was supported by a retreating dollar index, falling U.S. yields, and anticipated rate cuts from the Federal Reserve. Powell’s speech at Jackson Hole extended the drop for the fourth consecutive week. Additionally, the Canadian government plans to increase tariffs on China and reduce the cap on foreign workers in firms from 20% to 10%, which could slow the pace of disinflation in the coming quarters.
(USDCAD Daily Chart)
Despite the recent news flow that contributed to a drop in USDCAD, the uptrend from 2021 remains intact. With Canada’s inflation on a fast track to the 2% target, the Bank of Canada is likely to reduce rates as quickly as the Federal Reserve for the rest of the year. In fact, according to a Bloomberg poll, economists expect deeper cuts from the BOC in 2025. However, if a break to the downside occurs, USDCAD could extend its drop to 1.3225 or even 1.30, depending on the momentum. The decision to break or recover could come within two weeks, with an upcoming busy economic calendar featuring U.S. and Canada GDP data, PCE, payroll reports, BOC rate decision and even Nvidia’s earnings report.
