DXY, USDCAD Outlook: Are Rate Cut Bets Fully Priced In?

Key Events:

• Questions around whether markets have fully priced in expectations rise ahead of the FOMC meeting
• The U.S. Dollar Index (DXY) trades near its 2025 lows around 96.50
• USD/CAD remains above 1.37 as markets anticipate 25 bps rate cuts from both the Fed and the BOC

BOC and Fed meetings are under the spotlight today, both with 25 bos rate cut expectations, pricing in dovish pressured on the US Dollar index back towards the 2025 trough (96.50) and the USDCAD in a holding move above key support zone 1.37.

BOC in Focus: Growth, Labor, and Tariffs Cloud Outlook

Tariffs remain a major concern for central banks, including the Bank of Canada, as policymakers weigh their options carefully. Recent data tilts toward caution:

• Canadian GDP revisions showed Q1 falling to 1.6% and Q2 trimmed from 2.2% to 2.0%.
• Unemployment climbed to 7%, matching levels last seen in 2021.
• Inflation came in mixed, with CPI m/m at –0.1%, while both median and trimmed CPI hovered around 3.1%.

This soft data backdrop reinforces expectations for a 25 bps rate cut, bringing the BOC’s policy rate down from 2.75% to 2.50%.

Impact on USD/CAD: The pair maintains a stable hold above the 1.37 support zone, while FOMC-related pressures continue to build from the U.S. side.

The Fed Case: 25 bps Priced In, but 50 bps Speculation Lingers

Despite headlines leaning bearish, market structure and key technical levels take priority — particularly when expectations are already priced in. If the Fed delivers more dovish signals than expected, particularly in reference to labor market weakness, we may see another leg lower in the U.S. Dollar Index (DXY).

However, the monthly time frame structure on the U.S. Dollar Index chart continues to draw my attention due to the following key patterns:

DXY Outlook: Monthly Time Frame – Log Scale
Source: Tradingview

Since 2008, the DXY has moved within a well-respected ascending parallel channel on the monthly time frame. The current price is testing the lower boundary of this 17-year structure, mirroring prior rebound setups — including:

• A bullish engulfing pattern
• Monthly RSI reaching historic oversold levels

This setup raises questions about the sustainability of the current downtrend and whether we’re near a reversal or breakout point.

DXY Outlook: Daily Time Frame – Log Scale

Source: Tradingview

On the daily chart, DXY is forming a head and shoulders pattern, pointing toward 95.00, and potentially lower towards levels 92.00 and 89.00 (2021 trough).

However, unless a clear breakdown occurs, I’m still considering the possibility of a limited downtrend or a reversal. A rebound from the 96.50 support, followed by breaks above 97.50 and 98.50, would shift the bias back toward bullish.

USDCAD Outlook: Daily Time Frame – Log Scale

Source: Tradingview

USD/CAD remains in neutral territory, with price consolidating below the 1.39 resistance since August. A potential head and shoulders pattern may be forming, but it requires a decisive break below 1.3720 to confirm, which could open the path toward the 2025 lows at 1.3650 and 1.3540.

On the upside, if the pair maintains support above 1.3760, we could see a move toward 1.3820, 1.3880, and 1.3920.

Written by Razan Hilal, CMT

Follow on X: @Rh_waves