Canadian Dollar, USD/CAD Talking Points:
- The US Dollar has continued to hold near lows with another fresh monthly low established this week, and sellers are still stepping back from trend continuation.
- Meanwhile in USD/CAD there’s remained a bullish sequence in-play and if we do see a USD rally develop, USD/CAD appears well positioned for a test of 1.4000 and perhaps even the 1.4151-1.4178 zone that was last in-play back in April.
- I’ll be looking at USD amongst several other USD markets ahead of the FOMC rate decision, and you’re welcome to join that session. Click here to register.
Next week brings the Fed and the long-awaited rate cut that markets have been vying for since early in the year. And markets want more if we look at rate expectations, as there’s 75 bps in cuts priced in for this year and another 75 priced in for next year, even with inflation remaining high following this week’s CPI release. That showed headline inflation going up to 2.9% and Core CPI holding at 3.1%, both levels that would normally not be associated with rate cuts. But, given weakness in the labor market and fear of a slowdown in the US, it seems as though many are looking past that inflationary potential and instead honing in on softer rates.
That does, however, highlight a massive point of interest, particularly for USD/CAD. While the Dollar has been weak for most of 2025, that weakness in USD/CAD was largely contained to the first half of the year; and more recently, the pair has actually shown bullish structure as an ascending triangle that built in June and July gave way to breakouts and fresh highs.
Even as USD-weakness came roaring back on August 1st, on the back of the NFP report, USD/CAD stood tall, holding support at prior resistance and then bulls following that up with another hold of 1.3750 to go along with a higher-low. And this week, even as the USD pushed down for a fresh monthly low, USD/CAD rallied up for a test of the 1.3900 level, further illustrating that deduction of CAD-weakness, that could make USD/CAD as an attractive venue for USD-strength scenarios, should they appear after the Fed’s rate cuts begin.
You might ask why the Dollar would rally even as the Fed cuts rates. After all, that would seemingly be the opposite reaction from such a fundamental driver that one might expect. But, we just have to look back to last year, as the USD sold off into the Fed’s cutting cycle only to bottom on the day of the move. Bears were then stalled for about two weeks and then as the door opened into October and Q4, USD-strength took over in a big way.
It’s often not the rate cut itself that moves a market – it’s the pricing in of those cuts, and at this stage, the bar is incredibly high for rate cuts into the end of next year. And if we do see a similar reaction as last year, USD/CAD is attractively situated for a re-test of the 1.4000 level and perhaps even the 1.4151-1.4178 zone.
USD/CAD Daily Price Chart
Chart prepared by James Stanley; data derived from Tradingview
--- written by James Stanley, Senior Strategist
